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Regulating Information

50 Pages Posted: 19 Oct 2016 Last revised: 11 Nov 2017

Andrew Bird

Carnegie Mellon University

Stephen A. Karolyi

Carnegie Mellon University - David A. Tepper School of Business

Thomas G. Ruchti

Carnegie Mellon University - David A. Tepper School of Business

Date Written: June 1, 2017

Abstract

The SEC regulates and standardizes information production in financial markets through financial reporting standards. With a novel dataset exploiting institutional features of the standard setting process. On average, standards increase aggregate market value by 0.93%, although discord among market participants moderates this positive effect. We construct a firm-level measure of ex ante sensitivity to information regulation and 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

Bird, Andrew and Karolyi, Stephen A. and Ruchti, Thomas G., Regulating Information (June 1, 2017). Available at SSRN: https://ssrn.com/abstract=2854469

Andrew Bird

Carnegie Mellon University ( email )

Pittsburgh, PA 15213-3890
United States

Stephen Karolyi (Contact Author)

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
4122682909 (Phone)

Thomas Ruchti

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

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