Regulating Information

51 Pages Posted: 19 Oct 2016 Last revised: 20 Jan 2017

Andrew Bird

Carnegie Mellon University - Tepper School of Business

Stephen A. Karolyi

Carnegie Mellon University - Tepper School of Business

Thomas G. Ruchti

Carnegie Mellon University - Tepper School of Business

Date Written: October 18, 2016

Abstract

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

Bird, Andrew and Karolyi, Stephen A. and Ruchti, Thomas G., Regulating Information (October 18, 2016). Available at SSRN: https://ssrn.com/abstract=2854469

Andrew Bird

Carnegie Mellon University - Tepper School of Business ( email )

Pittsburgh, PA 15213-3890
United States

Stephen A. Karolyi (Contact Author)

Carnegie Mellon University - Tepper School of Business ( email )

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

Thomas G. Ruchti

Carnegie Mellon University - Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

Paper statistics

Downloads
149
Rank
162,416
Abstract Views
441