The Effects of MiFID II on Voluntary Disclosure

We examine the effect of the Markets in Financial Instruments Directive (MiFID) II’s controversial unbundling provision on corporate voluntary disclosure. Although prior research has largely focused on changes in sell-side research post-MiFID II, changes in voluntary disclosure and their effects on the information environment are less known. We find that European Union (EU) firms significantly increased the propensity and frequency of management earnings guidance issuance after MiFID II enactment. This effect is more pronounced among firms experiencing a decline in the quantity of sell-side research or a reduction in the consumption and dissemination of analyst reports and is more muted among firms witnessing improvements in research quality. Furthermore, we find that post-MiFID earnings guidance by EU firms becomes more thorough and elicits stronger market reactions. Moreover, we demonstrate that the increased guidance effectively alleviates the negative liquidity effects of MiFID II. Collectively, we contribute to the ongoing debate on the efficacy of MiFID II’s unbundling provision by providing evidence that voluntary disclosure plays a key role in mitigating the unintended net negative consequences on the information environment following the regulation. This paper was accepted by Suraj Srinivasan, accounting. Funding: Financial support from the New York University Stern School of Business, Seoul National University, the Baruch College Zicklin School of Business, and George Washington University is gratefully acknowledged. C. Kim also received financial support from the Institute of Management Research of Seoul National University. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2023.00286 .