Contingent liability disclosure and stock price informativeness: evidence from NSE 500 firms in India

This study examines the association between contingent liability disclosure (CLD) and stock price synchronicity in India, assessing whether CLD facilitates the incorporation of firm-specific information into stock prices. Using panel data comprising 5,483 firm-year observations from 2006–2023, synchronicity is estimated using the Capital Asset Pricing Model (CAPM) and the Fama–French four-factor and six-factor models. Higher CLD is associated with lower synchronicity across model specifications, consistent with greater incorporation of firm-specific information into stock prices. Financial contingencies exhibit the most consistently significant negative association, followed by operational contingencies, while evidence for transaction-related contingencies is less consistent. The association also varies across market environments: it is weaker among passive-fund stocks but remains evident among stocks with derivatives trading and across different levels of intraday trading activity. The study contributes to the corporate disclosure and capital-market literature by distinguishing among categories of contingent liabilities and providing evidence from an emerging market with evolving disclosure regulations and concentrated ownership. The findings reflect disclosure-adjusted contingent liability exposure rather than disclosure quality alone. This study shows that greater contingent liability disclosure is associated with lower stock price synchronicity in India, consistent with more firm-specific information being reflected in prices. By distinguishing financial, operational, and transaction-related contingencies, it highlights differences in their informational relevance. The findings can inform disclosure policy, guide corporate reporting, and help investors assess uncertain obligations, while emphasizing that disclosure’s informational role varies across market environments.