50 Pages Posted: 19 Oct 2016 Last revised: 11 Nov 2017
Date Written: June 1, 2017
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
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