43 Pages Posted: 19 Apr 2004
Date Written: April 2004
This paper examines the economic consequences of a regulatory change mandating OTCBB firms to comply with reporting requirements under the 1934 Securities Exchange Act. This change substantially increases mandated disclosures for firms previously not filing with the SEC. We document that the imposition of disclosure requirements results in significant costs for smaller firms, forcing them off the OTCBB. SEC regulation also has significant benefits. Firms previously filing with the SEC experience positive stock returns and permanent increases in liquidity, suggesting positive externalities from disclosure regulation. Newly compliant firms exhibit significant increases in liquidity consistent with improved disclosure reducing information asymmetry.
Notes: Previously titled "Economic Consequences of SEC Disclosure Regulation: Evidence from the OTC Bulletin Board"
Keywords: Mandatory disclosure, enforcement, externalities, over-the-counter market, liquidity, listing choices, eligibility rule
JEL Classification: G18, G38, K22, G39, M41, M45, M44, G14
Suggested Citation: Suggested Citation
Bushee, Brian J. and Leuz, Christian, Economic Consequences of SEC Disclosure Regulation: Evidence from the OTC Bulletin Board (April 2004). AFA 2004 San Diego Meetings. Available at SSRN: https://ssrn.com/abstract=307821 or http://dx.doi.org/10.2139/ssrn.307821