Priority Dissemination of Public Disclosures

Abstract:     
We examine an SEC-sanctioned practice in the pre-Reg FD era that created an institutionalized channel for disseminating all corporate press releases to a broad group of sophisticated market participants 15 minutes earlier than to the general public. We find that this channel contributed to 19 percent of the overall price discovery due to information leakage prior to earnings releases. In addition, firms announcing earnings during (outside of) regular trading hours relied heavily (little) on the institutionalized channel for information leakage. Consistent with their disclosure incentives, firms used the institutionalized channel by strategically choosing the time-of-day to announce earnings. Finally, consistent with economic theory, we find that bid-ask spread (intraday volatility) decreased (increased) post Reg FD for those firms that had used theinstitutionalized priority dissemination channel.

Number of Pages in PDF File: 52

Keywords: Information leakage channels, Earnings press releases, Intraday market reaction, Regulation Fair Disclosure, Market Microstructure

JEL Classification: D82, G14, K22, M45

working papers series