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

63 Pages Posted: 23 Aug 2019

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 Arkansas

Andrew T. Pierce

University of Arkansas

Date Written: August 20, 2019

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. Initial studies provide evidence that Reg FD reduced managers’ selective disclosure of material information. We test whether the initial effects of Reg FD on selective disclosure have diminished due to the SEC’s challenges in enforcing Reg FD. Specifically, we predict and find evidence that the SEC’s failed litigation attempt in SEC v. Siebel Systems, Inc. likely lowered managers’ perceived costs of selective disclosure and contributed to a return of informed trading by transient institutional investors. We also find that SEC v. Siebel Systems led to an unleveling effect that creates differential private information advantages, even among sophisticated investors. Our results suggest that researchers should exercise caution in assuming that Reg FD broadly restricted private information flows, and our study highlights 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: M40, M48, G38, G24

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? (August 20, 2019). 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 Arkansas ( email )

Fayetteville, AR 72701
United States

Andrew T. Pierce

University of Arkansas ( email )

Fayetteville, AR 72701
United States

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