Voluntary Disclosure and Information Asymmetry: Evidence from the 2005 Securities Offering Reform

60 Pages Posted: 24 May 2011 Last revised: 17 Nov 2013

Nemit Shroff

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Amy X. Sun

University of Houston

Hal D. White

Penn State University

Weining Zhang

Cheung Kong Graduate School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: July 23, 2013

Abstract

In 2005, the SEC enacted the Securities Offering Reform (Reform), which relaxes ‘gun jumping’ restrictions, thereby allowing firms to more freely disclose information before equity offerings. We examine the effect of the Reform on voluntary disclosure behavior before equity offerings and the associated economic consequences. We find that firms provide significantly more pre-offering disclosures after the Reform. Further, we find that these pre-offering disclosures are associated with a decrease in information asymmetry and a reduction in the cost of raising equity capital. Our findings not only inform the debate on the market effect of the Reform, but also speak to the literature on the relation between voluntary disclosure and information asymmetry by examining the effect of quasi-exogenous changes in voluntary disclosure on information asymmetry, and thus a firm’s cost of capital.

Keywords: Securities Offering Reform, Information Asymmetry, Voluntary Disclosure, Management Forecasts, Press Releases, Seasoned Equity Offerings, Market efficiency

JEL Classification: G14, M41

Suggested Citation

Shroff, Nemit and Sun, Amy X. and White, Hal D. and Zhang, Weining, Voluntary Disclosure and Information Asymmetry: Evidence from the 2005 Securities Offering Reform (July 23, 2013). MIT Sloan Research Paper No. 4980-12. Available at SSRN: https://ssrn.com/abstract=1846123 or http://dx.doi.org/10.2139/ssrn.1846123

Nemit Shroff

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main St.
E62-679
Cambridge, MA MA 02142
United States
6173240805 (Phone)

HOME PAGE: http://mitsloan.mit.edu/faculty/detail.php?in_spseqno=51407&co_list=F

Amy X. Sun

University of Houston ( email )

Bauer College of Business
334 Melcher Hall, 390H
Houston, TX 77204
United States
7137435682 (Phone)

Hal D. White (Contact Author)

Penn State University ( email )

210 Business Building
Smeal College of Business
University Park, PA 16802-3306
United States
814-863-7055 (Phone)

Weining Zhang

Cheung Kong Graduate School of Business ( email )

Oriental Plaza, Tower E3
One East Chang An Avenue
Beijing, 100738
China

HOME PAGE: http://english.ckgsb.edu.cn/FacultyResearch/Faculty/Accounting/ZhangWeining.aspx

Paper statistics

Downloads
882
Rank
20,462
Abstract Views
2,226