Determinants of the Quality of Public Announcements of Listed Companies Disclosed on the Stock Exchanges in the Baltic Countries

Article excerpt

Companies release relevant information in the form of press releases, public announcements, or financial reports to lower the information asymmetries between investors and managers. Therefore, higher quality disclosure is expected to improve the informational efficiency of the stock exchange and is of special interest on developing markets. The objective of this paper was to investigate public announcements' disclosure quality on Tallinn, Riga and Vilnius Stock Exchanges. This paper focused on 52 companies that had been listed on these three markets during the whole period of 2001-2005. Disclosure quality was measured as a sum of six quality attributes - informativeness, relevance, precision, rarity, frequency, and unexpectedness - and it was assumed to differ across years, across company size groups, across themes of the announcement and across stock exchanges. The results showed that disclosure quality had increased across years and the differences between the disclosure quality levels of firms with high and medium disclosure quality had decreased. This implies that the improvement in Stock Exchange Rules and the listed companies' disclosure policies had a positive impact on the general disclosure quality level. Bigger firms tended to have greater quality disclosures, however, the differences between the disclosure quality of big and medium-sized firms had almost disappeared by the end of 2005. This indicates that during the period of 2001-2005 the improvement in disclosure quality levels was the greatest in medium-sized firms, but almost no improvement occurred in the small company group. This refers to the possibility that only bigger firms may invest in disclosure quality improvement. It appeared that business, business-financials and owner-related disclosure quality exceeded that of company- and management-related news. Still, there existed differences in the ordering of themes' quality scores across stock exchanges.

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1. Introduction

Listed companies can communicate with the public using different mediums and types of disclosures. This paper focuses on public announcements defined as news items compiled by the listed company to fulfil disclosure requirements set in Stock Exchange Rules and published under the company news section on the stock exchange's web-page. The aim of these disclosures is to inform investors of important events that are not known to the public, but because of their potential impact on the listed company's assets, liabilities, activity, or reputation may have a significant effect on the share price. The purpose of this paper is to investigate public announcements' disclosure quality on Tallinn, Riga and Vilnius Stock Exchanges (hereinafter TSE, RSE and VSE respectively) by concentrating on disclosure quality differences across years, company size groups, themes and stock exchanges. This paper contributes to the existing literature in three respects.

First, most of the previous disclosure research has paid little attention to public announcements due to lack of suitable quality measures, however, a recent solution provided in Laidroo (2009) enables to investigate their quality in more detail. The reason why public announcements deserve more attention stems from the fact that public announcements are different from other types of disclosures like the financial reports and ordinary press releases because of their timeliness, the ease of simultaneous access to investors, and the regulative framework behind them. Because of these distinguishing features, higher quality public announcements could be expected to lead to lower information asymmetries more quickly than in case with other types of disclosures, and, therefore, they deserve more attention. The quality of public announcements is also of special interest to investors and capital market regulators, because the expectation is that the higher is the quality of disclosure, the lower are the information asymmetries and the smaller are the agency conflicts between investors and managers. …

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