The Unintended Benefits of Increased Disclosure Frequency: Evidence from the Brokerage House Industry

Abstract

Using a plausibly exogenous shock to performance disclosure frequency by listed brokerage houses in China, we examine the impact of disclosure frequency on the quality of information production. Difference-in-difference estimation shows that analysts affiliated with listed brokerage houses exhibit lower forecast optimism in the post-regulation period, compared to their unlisted peers. Cross-sectional analyses suggest that the effect is more pronounced when the listed brokerage houses’ business relies less on their clients, when analysts have greater career concern, and when the covered firms exhibit lower valuation uncertainty/difficulty. Additional analysis indicates that forecast revisions by analysts affiliated with a listed brokerage house are more informative after the shock. Moreover, we find that analysts affiliated with listed brokerage houses issue more accurate and frequent forecasts and cover more companies than their peers do, which suggests that information production improves as a result of increased competition. Overall, our evidence suggests that increased performance disclosure by information intermediaries has positive externalities.