Enforcement and Disclosure Under Regulation FD: An Empirical Analysis

37 Pages Posted: 25 Mar 2010 Last revised: 1 Oct 2010

Paul A. Griffin

University of California, Davis - Graduate School of Management; University of California, Davis

David H. Lont

University of Otago - Department of Accountancy and Finance

Benjamin Segal

Fordham University; Hebrew University of Jerusalem

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Date Written: August 11, 2010

Abstract

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.

Keywords: Regulation FD, Enforcement action, Untimely FD disclosure, Event study

JEL Classification: G14, K22, M41

Suggested Citation

Griffin, Paul A. and Lont, David H. and Segal, Benjamin, Enforcement and Disclosure Under Regulation FD: An Empirical Analysis (August 11, 2010). UC Davis Graduate School of Management Research Paper No. 05-10. Available at SSRN: https://ssrn.com/abstract=1574102 or http://dx.doi.org/10.2139/ssrn.1574102

Paul A. Griffin (Contact Author)

University of California, Davis - Graduate School of Management ( email )

3102 Gallahger Hall
Davis, CA 95616
United States
(530) 752-7372 (Phone)
(425) 799-4143 (Fax)

HOME PAGE: http://www.gsm.ucdavis.edu/griffin/

University of California, Davis ( email )

3102 Gallahger Hall
Davis, CA 95616
United States
(530) 752-7372 (Phone)
(425) 799-4143 (Fax)

HOME PAGE: http://www.gsm.ucdavis.edu/griffin/

David H. Lont

University of Otago - Department of Accountancy and Finance ( email )

Box 56
Dunedin, Otago 9054
New Zealand
+64 3 479 8119 (Phone)
+64 3 479 8171 (Fax)

HOME PAGE: http://www.business.otago.ac.nz/acty/

Benjamin Segal

Fordham University ( email )

113 West 60th Street
New York, NY 10023
United States

Hebrew University of Jerusalem

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