Capital Market Implications of CorporateDisclosure: German Evidence

This paper investigates the relationship between annual report disclosure, market liquidity, and capitalcost for firms registered on the Deutsche Börse. Disclosure is comprehensively measured using the innovativeArtificial Intelligence Measurement of Disclosure (AIMD). Results show that annual report disclosureenhances market liquidity by changing investors’ expectations and inducing portfolio adjustments. Tradingfrictions are negatively associated with disclosure. The study provides evidence for a capital-costreductioneffect of disclosure based on the analysis of investors’ return requirements and market values.Altogether, no evidence is found that the information processing at the German capital market is structurallydifferent from other markets.