The impact of regulation Fair Disclosure on investors' prior information quality — Evidence from an analysis of changes in trading volume and stock price reactions to earnings announcements |
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| Institution: | 1. Department of Banking and Finance, University of Zurich, Swiss Finance Institute, CEPR, and ECGI, Plattenstrasse 14, CH-8032 Zurich, Switzerland;2. Harvard Kennedy School, Harvard University and NBER, 79 JFK Street, Cambridge, MA 02139, USA;3. Department of Banking and Finance, University of Zurich, Plattenstrasse 14, CH-8032 Zurich, Switzerland;1. School of Computer Science and Statistics, Trinity College Dublin, Ireland;2. School of Electronics and Computer Science, University of Southampton, UK;3. Department of Banking and Finance, Monash Business School, Monash University, Sir John Monash Drive, Melbourne, Australia;4. Monash Business School, Monash University, Australia;5. Southampton Business School, University of Southampton, UK;1. College of Management and Economics, Tianjin University, Tianjin 300072, PR China;2. China Center for Social Computing and Analytics, Tianjin University, Tianjin 300072, PR China;3. Key Laboratory of Computation and Analytics of Complex Management Systems, Tianjin 300072, PR China;1. Dipartimento di Scienze Economiche e Aziendali, University of Sassari, Via Francesco Muroni 25, Sassari 07100, Italy;2. Dipartimento di Scienze dell’Economia e dell’Impresa, University of Florence, Via delle Pandette 32, Firenze 50127, Italy |
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| Abstract: | We document that Regulation Fair Disclosure has reduced differences in information quality between investors prior to quarterly earnings announcements consistent with the intent of the regulation. This reduction is driven by small firms and high technology firms, rather than the large firms targeted by the SEC, which suggests that selective disclosure among large firms may have been much more limited than what was presumed by proponents of FD. In addition, we document that FD has decreased the average information quality of investors in small and high technology firms in the period prior to an earnings announcement while having no lasting effect on other firms. Taken together these two results suggest that, for small and high technology firms, FD succeeded in eliminating selective disclosure but also lowered the average quality of information available about these firms. |
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