Selective Disclosure of Material Information: Evidence from Regulation Fair Disclosure Form 8-Ks
54 Pages Posted: 1 Jul 2016 Last revised: 21 Feb 2019
Date Written: February 12, 2019
We offer new evidence on the extent to which subsets of investors trade on the selective disclosure of material information. Specifically, we use the setting of Regulation Fair Disclosure (Reg FD) Form 8-K filings, where managers purportedly release material information to the market as a whole. We find three main results. First, using intra-day (and daily) trading data, we find abnormal trading volume in the hour (day) prior to the public disclosure of the material information of 21% (13%). This evidence suggests that a subset of investors trade on material information prior to its public release. Second, we find that this pre-disclosure abnormal trading volume is concentrated in firms that are smaller, have more growth opportunities, issue fewer voluntary disclosures, and have weaker external monitoring. Finally, we find that this pre-disclosure trading volume is larger when the information relates to the firm’s material contracts as well as when, prior to the information release, a firm’s managers hold investor/analyst conferences or there is higher insider trading activity in the firm’s shares. Our results do not concentrate in a small number of firms or industries, and do not appear to be explained by the form through which managers first release the material information (e.g., Form 8-K, press release, website posting, or social media), other firm filings that occur around the disclosure, or even peer firm filings that occur around the disclosure. Overall, our results suggest that, inconsistent with the spirit of Reg FD, a subset of investors trade on material information prior to its public release.
Keywords: Selective Disclosure, Regulation Fair Disclosure (Reg FD), Regulation Effectiveness
Suggested Citation: Suggested Citation