1. Discussion of “Commitment to Disclosure and Firm Liquidity -- Evidence from Smaller Reporting Companies” Jonathan L. Rogers University of Chicago Booth School of Business 2010 CAPANA Conference

2. Overall Impressions Clever setting Clearly contributes to existing research Good empirical design Well on its way

3. Key Findings Smaller firms that have entrenched managers and have less information demand are more likely to reduce their disclosure level Firms that reduce their disclosure experience decreased market liquidity Losing the ability to commit to disclosure reduces liquidity (even when actual disclosure does not change) This commitment effect is larger for firms with higher agency costs

4. Motivation and Contribution Cost of capital versus liquidity –Prior studies have not directly investigated the connection between a commitment to disclosure and market liquidity –Instead, these studies focus on the cross-sectional relation between voluntary disclosure and the cost of capital –“We explore this mandatory-to-voluntary shift of disclosure requirements to examine the impact of the loss of commitment on firms’ information asymmetry component of the cost of capital” (p. 3) –“Since information asymmetry often manifests in reduced liquidity, we use liquidity to proxy for the information asymmetry component of the cost of capital” (p. 3). –Shameless plug – Rogers (2008) Include implications on the question of whether (and to what extent) voluntary disclosure can be a substitute for mandatory disclosure

5. Hypotheses H1 – Determinants of disclosure/omission H2 – Loss of ability to commit and liquidity H3 – Disclosure level and liquidity H4 – Loss of ability to commit, agency costs and liquidity

6. Things to think about Levels versus changes Measurement window –(6-month period before December 2004 versus 6- month period after first 10K in 2008) Liquidity proxies –Bid-ask spread –ILLIQ measures the absolute (percentage) price change per dollar of daily trading volume ILLIQ_POST for scaled disclosure = 5.0477 (Table 1)

7. Things to think about (cont.) Clarify exclusion versus reduction Controls for other voluntary disclosure choices Controlling for self-selection Economic magnitude –“the average ILLIQ measure for smaller reporting companies that maintain their disclosure level increases from 0.6239 to 2.101” (p. 25) Variable descriptions and names –eg. BH_ALIGN, DISC_ALL