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MiFID II, especially the unbundling provision that required brokerages to separate research costs from trading execution costs, was instituted to improve investor protection. However, its countervailing effect on the capital market due to the provision's intended and unintended consequences has led to controversies about its efficacy and even to discussions about its rollback. In this paper, we examine the role of firms' voluntary disclosure amidst these controversies, especially in terms of mitigating the unintended negative capital market effects of MiFID II. Using a difference-in-differences analysis with U.S. firms as the control group, we find that EU firms significantly increase the likelihood and frequency of issuing management guidance following the implementation of MiFID II. This effect is larger for firms which suffered deterioration in the quantity (analyst coverage) and quality (analyst forecast accuracy) of sell-side analyst information. We also find evidence of increased market responses to EU firms' guidance following MiFID II. Lastly, we document that firms that increase guidance post-MiFID II do not suffer from the unintended negative stock liquidity effects of MiFID II. Collectively, our results suggest that firms respond to changes in analyst behavior post-MiFID II through voluntary disclosure to mitigate the unintended negative consequences of MiFID II, providing support for the efficacy of MiFID II's unbundling provision.

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