EconPapers    
Economics at your fingertips  
 

SEC Regulation Fair Disclosure, Information, and the Cost of Capital

Armando Gomes, Gary Gorton and Leonardo Madureira ()

No 10567, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We empirically investigate the effects of the adoption of Regulation Fair Disclosure ( Reg FD') by the U.S. Securities and Exchange Commission in October 2000. This rule was intended to stop the practice of selective disclosure,' in which companies give material information only to a few analysts and institutional investors prior to disclosing it publicly. We find that the adoption of Reg FD caused a significant reallocation of information-producing resources, resulting in a welfare loss for small firms, which now face a higher cost of capital. The loss of the selective disclosure' channel for information flows could not be compensated for via other information transmission channels. This effect was more pronounced for firms communicating complex information and, consistent with the investor recognition hypothesis, for those losing analyst coverage. Moreover, we find no significant relationship of the different responses with litigation risks and agency costs. Our results suggest that Reg FD had unintended consequences and that information' in financial markets may be more complicated than current finance theory admits.

JEL-codes: G10 G12 (search for similar items in EconPapers)
Date: 2004-06
New Economics Papers: this item is included in nep-cfn and nep-reg
Note: AP CF IO
References: Add references at CitEc
Citations: View citations in EconPapers (10)

Published as Gomes, Armando, Gary Gorton and Leonardo Madureira. "SEC Regulation FD, Information, and the Cost of Capital.” Journal of Corporate Finance 13, 2-3 (June 2007): 300-334.

Downloads: (external link)
http://www.nber.org/papers/w10567.pdf (application/pdf)

Related works:
Journal Article: SEC Regulation Fair Disclosure, information, and the cost of capital (2007) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:10567

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w10567

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2024-12-28
Handle: RePEc:nbr:nberwo:10567