The Effect of Algorithmic Trading on Voluntary Disclosure

I investigate whether algorithmic trading (AT) affects voluntary disclosure. I predict that AT’s advantage over non-algorithmic investors decreases information acquisition. Because investors are less informed, managers increase disclosure to reduce information asymmetry. I find evidence consistent with these predictions; AT is positively associated with the likelihood and quantity of management guidance issued. Further, when AT is high, informed trading is more costly, information acquisition is lower, and investors are less informed prior to management disclosures. This question is important to academics, regulators, and the investing public due to the debate over the desirability of AT in capital markets.