51 Pages Posted: 19 Oct 2016 Last revised: 20 Jan 2017
Date Written: October 18, 2016
The SEC regulates and standardizes information production in financial markets through financial reporting standards. We construct a novel dataset exploiting institutional features of the standard setting process and find that, on average, standards increase aggregate market value by 0.93%, although discord among market participants moderates this positive effect. Using a firm-level measure of ex ante sensitivity to information regulation, we find that the information content of subsequent information events is higher for sensitive firms. Increased information content comes from negative news, consistent with regulation constraining discretionary disclosure. Information regulation improves capital allocation by reducing asymmetric information in financial markets.
Keywords: political economy of regulation, financial markets, asymmetric information, cost of capital, capital allocation
JEL Classification: G21, G28, G32, M41
Suggested Citation: Suggested Citation
Bird, Andrew and Karolyi, Stephen A. and Ruchti, Thomas G., Regulating Information (October 18, 2016). Available at SSRN: https://ssrn.com/abstract=2854469