Regulatory Certification, Risk Factor Disclosure and Investor Behavior

58 Pages Posted: 13 Aug 2016 Last revised: 12 Dec 2019

See all articles by Ruben Cox

Ruben Cox

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Peter de Goeij

Tilburg University

Date Written: December 8, 2019

Abstract

This paper examines the question: Does regulatory approval of prospectuses act as a “certification” of securities offerings? Rational investors should generally ignore prospectus approval due to its being uninformative regarding either the quality of, or motives for, the underlying offering. Our survey experiment demonstrates that salient references to regulatory oversight in investment advertisements can lead to significant increases in willingness to invest and concomitant decreases in perceived risks. Conversely, salient disclosure of risk factor information increases risk perceptions and reduces the intention to search for additional information. Various robustness tests confirm that investors can perceive regulatory oversight of securities offerings as an endorsement. Our results provide insight regarding the design of the disclosure and the effective regulation of financial marketing.

Keywords: salience, investment behavior, advertising, statutory disclosure

JEL Classification: G11, G18, D91, M37

Suggested Citation

Cox, Ruben and de Goeij, Peter, Regulatory Certification, Risk Factor Disclosure and Investor Behavior (December 8, 2019). Available at SSRN: https://ssrn.com/abstract=2822212 or http://dx.doi.org/10.2139/ssrn.2822212

Ruben Cox (Contact Author)

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands
+31 (0) 10 4088929 (Phone)

Peter De Goeij

Tilburg University ( email )

P.O. Box 90153
Room I607
Tilburg, Noord-Brabant 5000 LE
Netherlands
+31134662083 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
230
Abstract Views
1,608
rank
137,006
PlumX Metrics