Enforcement and Disclosure Under Regulation FD: An Empirical Analysis
Paul A. Griffin
University of California, Davis - Graduate School of Management
David H. Lont
University of Otago - Department of Accountancy and Finance
Fordham University; Hebrew University of Jerusalem
August 11, 2010
UC Davis Graduate School of Management Research Paper No. 05-10
This paper analyzes the impact of FD enforcement by calculating (1) the aggregate market gain to covered investors from access to selective information during the FD violation period and (2) the market response to the SEC enforcement announcement, at which time public investors first learn of an alleged FD violation. We also examine the market response to an untimely FD disclosure filing, which investors with earlier access to the FD event could exploit, possibly in violation of the regulation. Our analysis shows that FD may impose losses on public investors in three ways. First, they may lose because they may not recover the gains to covered investors from selective access ($278 million for the 10 enforcement cases so far). Second, they may lose because the market responds negatively to an SEC enforcement announcement (an average market-adjusted price drop of 6.11 percent over announcement days -1 to 1). Third, they may lose because many registrants file untimely FD disclosures (more than 24 hours late) not subject to earlier public disclosure through a press release. We intend these results to inform regulators and others about the cost and benefits of FD and to complement the existing literature, which thus far has focused on analyst, market, and company responses to FD adoption, and not the effects of FD enforcement or untimely disclosure. We also discuss the literature on analysts’ and investors’ responses around FD adoption, and reason that this evidence supports the view that most registrants disclose the same mix of information as before, despite an increase in conference calls and other disclosures.
Number of Pages in PDF File: 37
Keywords: Regulation FD, Enforcement action, Untimely FD disclosure, Event study
JEL Classification: G14, K22, M41
Date posted: March 25, 2010 ; Last revised: October 1, 2010
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