Disclosure level and information asymmetry in the Swedish setting

Abstract: The purpose of this paper is to examine the association between the level of voluntary disclosure in the annual report and information asymmetry in Sweden, hypothesising a negative association between the two. The study is performed on data from 22 Swedish companies listed on Nasdaq OMX Stockholm Stock Exchange in the time period 2001-2004. Each firms' annual report for the individual years have been rated with a disclosure index, consisting of 62 voluntary factors of disclosure. The disclosure score acts as a proxy for the level of voluntary disclosure. As a measure for information asymmetry, the median relative daily bid-ask spread calculated for the week, month, quarter and a full year after publication of the annual report is used. This is done to be able to analyse the effect of a change in disclosure over different time periods. The empirical study finds a statistical significant negative association between the level of voluntary disclosure and information asymmetry, confirming our hypothesis.