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Economic Consequences of SEC Disclosure Regulation: Evidence from the OTC Bulletin Board

43 Pages Posted: 19 Apr 2004  

Brian J. Bushee

University of Pennsylvania - The Wharton School

Christian Leuz

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

Multiple version iconThere are 2 versions of this paper

Date Written: April 2004

Abstract

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

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

Brian J. Bushee

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
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215-898-4872 (Phone)
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Christian Leuz (Contact Author)

University of Chicago - Booth School of Business ( email )

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Chicago, IL 60637
United States
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HOME PAGE: http://faculty.chicagobooth.edu/christian.leuz/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org

European Corporate Governance Institute (ECGI)

Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Center for Financial Studies (CFS) ( email )

Gr├╝neburgplatz 1
Frankfurt am Main, 60323
Germany

University of Pennsylvania - Wharton Financial Institutions Center

3641 Locust Walk
Philadelphia, PA 19104-6218
United States

CESifo Research Network

Poschinger Str. 5
Munich, DE-81679
Germany

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