Mandatory Disclosure and Operational Risk: Evidence from Hedge Fund Registration
55 Pages Posted: 13 Nov 2008
Date Written: 2007
Mandatory disclosure is a regulatory tool intended to allow market participants to assess operational risk. We examine the value of disclosure through the controversial SECrequirement, 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. Investorseither lack this information or regard it as immaterial. These findings suggest thatregulators should account for the endogenous production of information and the marginalbenefit of disclosure to different investment clienteles.
Keywords: Hedge funds, operational risk, SEC filing, Form ADV
Suggested Citation: Suggested Citation