Mandated Disclosure, Stock Returns, and the 1964 Securities Acts Amendments
Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER)
University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)
Stanford Graduate School of Business; National Bureau of Economic Research (NBER)
Quarterly Journal of Economics, Forthcoming
Stanford Law and Economics Olin Working Paper No. 296
MIT Department of Economics Working Paper No. 04-33
AFA 2005 Philadelphia Meetings
The 1964 Securities Acts Amendments extended the mandatory disclosure requirements that had applied to listed firms since 1934 to large firms traded Over-the-Counter (OTC). We find several pieces of evidence indicating that investors valued these disclosure requirements, two of which are particularly striking. First, a firm-level event study reveals that the OTC firms most affected by the 1964 Amendments had abnormal excess returns of about 3.5 percent in the weeks immediately surrounding the announcement that they had begun to comply with the new requirements. Second, we estimate that the most affected OTC firms had abnormal excess returns ranging between 11.5 and 22.1 percent in the period between when the legislation was initially proposed and when it went into force. These returns are adjusted for the standard four factors and are relative to NYSE/AMEX firms, matched on size and book-to-market equity, that were unaffected by the legislation. While we cannot determine how much of shareholders' gains were a transfer from insiders of these same companies, our results suggest that mandatory disclosure causes managers to focus more narrowly on maximizing shareholder value.
Number of Pages in PDF File: 59
Keywords: disclosure, SEC, securities market regulation
JEL Classification: G12, G28, G38, K22, L51, M41, M45, N22
Date posted: August 26, 2005
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