by firms and reported an average excess return of 1.45 percent
for 77 divestitures between 1977 and 1982.
23 Theyalsonotedaninterestingcontrastbetweenfirmsthat
announcethesalepriceandmotiveforthedivestitureatthe
time of the divestiture and those that do not: In general,
marketsreactmuchmorepositivelytothefirstgroupthanto
thesecond,asshowninTable16.6.Themarketclearlyseems
to be rewarding transparency, at least about this specific
action.
Cost of Capital
Ifinvestorsperceivefirmsthatdiscloselessinformationtobe
morerisky,it standsto reasonthat theywillattachhigher
costsofcapitalandlowervaluestothesefirms.Diamondand
Verrecchia(1991)usethisrationaletoarguethatitisinthe
bestinterestsoffirmstodiscloseasmuchinformationasthey
can rather than hold back information.
24 In their model, firms that reveal more information to
markets improve future liquidity and lower their costs of
capital. In later papers, evidence is presented for the
following phenomena:
- Moreinformativefinancialstatementsleadtolower
bid-ask spreads for individual companies (thus
adding to the liquidity argument).
25 Lookingacrossmarkets,tradingvolumetendsto
be lower in markets with less information disclosure. - Better disclosure reduces both the cost of equity
26 and the cost of debt
27 for