Mandatory Disclosure and Operational Risk: Evidence from Hedge Fund Registration
Stephen J. Brown
New York University - Stern School of Business
William N. Goetzmann
Yale School of Management - International Center for Finance; National Bureau of Economic Research (NBER)
University of Massachusetts Amherst - Department of Finance & Operations Management; China Academy of Financial Research (CAFR)
University of California at Irvine
Journal of Finance, Forthcoming
Yale ICF Working Paper No. 06-15
Mandatory disclosure is a regulatory tool intended to allow market participants to assess operational risk. We examine the value of disclosure through the controversial SEC requirement, since overturned, which required major hedge funds to register as investment advisors and file Form ADV disclosures. Leverage and ownership structures suggest that lenders and equity investors were already aware of operational risk. However, operational risk does not mediate flow-performance relationships. Investors either lack this information or regard it as immaterial. These findings suggest that regulators should account for the endogenous production of information and the marginal benefit of disclosure to different investment clienteles.
Number of Pages in PDF File: 55
Keywords: Hedge funds, operational risk, SEC filing, Form ADV
JEL Classification: G2, K2
Date posted: July 21, 2006 ; Last revised: September 11, 2009
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