Stock Price Synchronicity and Voluntary Disclosure in Perspective of Pakistan

Abstract

This study investigates the relationship between stock price synchronicity and voluntary disclosure in perspective of Pakistan. The degree of co-movement of stock price depends on the relative amount of firm-level and the wide market information. The aim of this study is to investigate the relationship between the degrees of firm’s information which is measured by voluntary disclosure levels and how much this firm-specific information is incorporated in the stock price, measured by synchronicity. We use 5-year data from Pakistan Stock Exchange for the period of 2010 to 2014 for KSE 100 index. We use SD-SCORE to measure the level of voluntary disclosure. SD-SCORE is calculated based on the information provided in firm’s annual reports. We assign points to each company based on five broad criteria. Additional points were given if firm provides quantitative data of some specific item used in the calculation of SD-SCORE. Further, R² is used as a proxy of synchronicity which shows the level of information impounded into share prices. We regress synchronicity on voluntary disclosure level to find out whether it incorporates in share price or not. We conclude that in Pakistan, voluntary disclosure has a significant positive relation with stock price synchronicity. Our results suggest that not only public but also the private information incorporate in the stock price and provide inversely U-shape relationship between synchronicity and voluntary disclosure. The results of this study are based on multi-variant analysis, there is a significant positive relation between stock price synchronicity and firm’s voluntary disclosure levels.