Economic Consequences of SEC Disclosure Regulation: Evidence from the OTC Bulletin Board
Brian J. Bushee
University of Pennsylvania - The Wharton School
University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Center for Financial Studies (CFS); University of Pennsylvania - Wharton Financial Institutions Center; CESifo Research Network
AFA 2004 San Diego Meetings
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.
Note: Previously titled "Economic Consequences of SEC Disclosure Regulation: Evidence from the OTC Bulletin Board"
Number of Pages in PDF File: 43
Keywords: Mandatory disclosure, enforcement, externalities, over-the-counter market, liquidity, listing choices, eligibility rule
JEL Classification: G18, G38, K22, G39, M41, M45, M44, G14
Date posted: April 19, 2004