Did the Siebel Systems Case Limit the SEC’s Ability to Enforce Regulation Fair Disclosure?

81 Pages Posted: 23 Aug 2019 Last revised: 3 Feb 2022

See all articles by Kristian D. Allee

Kristian D. Allee

University of Arkansas - Department of Accounting

Brian J. Bushee

University of Pennsylvania - The Wharton School

Tyler J. Kleppe

University of Kentucky - Von Allmen School of Accountancy

Andrew T. Pierce

University of Manchester - Alliance Manchester Business School

Date Written: January 28, 2022

Abstract

We examine whether a shock to the enforceability of Regulation Fair Disclosure (Reg FD) limited its ability to restrict the flow of private information between managers and investors. While prior work provides evidence that Reg FD reduced managers’ selective disclosure of material information immediately following its promulgation, we posit that private information flows returned as a result of the SEC’s public enforcement failure in SEC v. Siebel Systems, Inc. Using multiple settings, we find consistent evidence suggesting that Siebel changed the cost-benefit tradeoff for Reg FD compliance and effectively reversed the initial effects of the regulation. We also find that Siebel disrupted the equilibrium of selective disclosure activity, resulting in an unleveling effect among investors with respect to private information advantages. Finally, we find that Siebel also had real effects by altering managers’ capital structure decisions. Our findings run counter to the prevailing “mosaic theory” and gradual learning explanations for private information advantages in the extended post-Reg FD period and highlight the importance of enforcement in achieving intended regulatory outcomes.

Keywords: Regulation Fair Disclosure; SEC enforcement; Siebel Systems; institutional investors; selective disclosure; informed trading.

JEL Classification: G10, G14, G18, G30, G38, K20, K22, K42, M40, M41, M48

Suggested Citation

Allee, Kristian D. and Bushee, Brian J. and Kleppe, Tyler J. and Pierce, Andrew T., Did the Siebel Systems Case Limit the SEC’s Ability to Enforce Regulation Fair Disclosure? (January 28, 2022). Available at SSRN: https://ssrn.com/abstract=3440155 or http://dx.doi.org/10.2139/ssrn.3440155

Kristian D. Allee (Contact Author)

University of Arkansas - Department of Accounting ( email )

University of Arkansas
Business Building 458
Fayetteville, AR 72701
United States
479-575-5227 (Phone)

Brian J. Bushee

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-4872 (Phone)
215-573-2054 (Fax)

Tyler J. Kleppe

University of Kentucky - Von Allmen School of Accountancy ( email )

Lexington, KY 40506
United States

Andrew T. Pierce

University of Manchester - Alliance Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

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