Dissemination, Direct-Access Information Technology and Information Asymmetry

Firm disclosures often reach only a portion of investors, which results in information asymmetry among investors, and therefore lower market liquidity. This issue is particularly salient for firms that are not highly visible, as they tend not to receive broad news dissemination via traditional intermediaries, such as the press. This paper examines whether firms can reduce information asymmetry by using a new information technology to increase the breadth of dissemination of firm disclosures. Using a sample of technology firms, we examine the impact of using Twitter to send market participants links to press releases that are provided via traditional disclosure methods. We find this additional dissemination of firm-initiated news via Twitter is associated with lower bid-ask spreads and greater depths, consistent with a reduction in information asymmetry. Moreover, this result holds mainly for less visible firms, consistent with them being in greater need of this additional dissemination channel. We also decompose spread into an information asymmetry component and a non-information asymmetry component, and we find that dissemination via Twitter is negatively associated with the information asymmetry component. Finally, we examine the impact of dissemination on a volume-based measure of liquidity, and find that dissemination is positively associated with liquidity.