Does the Market Value Mandated Disclosure?

Abstract:     
Prior to the passage of the 1964 Securities Acts Amendments, firms moving from the Over-The-Counter (OTC) market to the New York Stock Exchange (NYSE) subjected themselves to a higher level of disclosure in return for the greater visibility and liquidity made available on the NYSE. Passage of the 1964 Securities Acts Amendments largely eliminated the differences in disclosure requirements in these markets. Prior literature finds that firms experience significant abnormal returns when they announce intentions to list on the NYSE. If investors value mandated disclosure, returns generated by announcing a move from the OTC market to the NYSE should be lower after the passage of the 1964 legislation. We examine the returns for 288 firms announcing intentions to move from the OTC market to the NYSE before and after this legislation, and find no difference in either raw or abnormal announcement period returns. This suggests investors place little value on mandated disclosure.

Keywords: mandated disclosure

JEL Classifications: G38

Working Paper Series