Corporate Disclosure in Times of Expansionary Monetary Policy.

Abstract

This paper examines how monetary policy changes affect corporate disclosure. The increase in the federal funds rate may incentivize firms to increase disclosure so as to counteract the shock of the increased cost of capital. Alternatively, firms may decrease their disclosure in expectation of lowered external financing needs. By examining the earnings guidance of publicly listed firms from 1995 to 2009, we find that an increase in the federal funds rate induces more corporate disclosure. The cross-sectional tests show that the effect of monetary policy changes is stronger when monetary policy change is more persistent or when firms have more external financing needs or more growth opportunities. Finally, we find that firms decrease their disclosure level in response to the announcements of unconventional expansionary monetary policies introduced between 2008 and 2015. Overall, our paper provides new insight into how firms respond to macroeconomic policy changes by changing their disclosure strategy.