The Impact of New Information Disclosure on Firm's Information Asymmetry and Liquidity

We study the effect of a firm's new information disclosure on the information asymmetry between its informed and uninformed investors and its liquidity. To do this, we employ advanced natural language processing (NLP) methods to introduce a novel measure of firms' 10-K filing predictability that quantifies the amount of new information in these reports. Our findings show that more new information is associated with higher bid-ask spreads and lower trading volumes, indicating increased information asymmetry and reduced liquidity, respectively. Notably, institutional ownership moderates these effects, suggesting that sophisticated investors can mitigate the adverse consequences of disclosure unpredictability. An event study analysis further reveals that more new information triggers increased trading activity and abnormal returns immediately after disclosure, though these effects are short-lived.