Implicit Communications and Enforcement of Corporate Disclosure Regulation

46 Pages Posted: 26 Aug 2019 Last revised: 20 Nov 2019

See all articles by Ashiq Ali

Ashiq Ali

University of Texas at Dallas - Naveen Jindal School of Management

Jill E. Fisch

University of Pennsylvania Law School - Institute for Law and Economics, European Corporate Governance Institute

Hoyoun Kyung

University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business

Date Written: August 21, 2019

Abstract

This study examines the challenge of implicit communications - qualitative statements, tone, and non-verbal cues - to the effectiveness of enforcing corporate disclosure regulations. We use Regulation FD setting, given that SEC adopted the regulation recognizing that managers can convey non-public information privately not just through explicit quantitative disclosures but also through implicit communications. In a high-profile enforcement action, however, the court focused on a literal examination of the manager’s language rather than his positive spin to conclude that SEC had been “too demanding” in examining the manager’s statements and that its enforcement policy was “overly aggressive.” We provide empirical evidence suggesting that selective disclosure from managers to financial analysts increased significantly after the court’s ruling. We also provide reasons to believe that this consisted, in part, of an increase in implicit communications. Our results highlight the challenges associated with enforcing corporate disclosure regulations in the context of implicit communications.

Keywords: Implicit Communications, Corporate Disclosure Regulation, SEC Enforcement, Regulation Fair Disclosure

JEL Classification: M48, K22, K42

Suggested Citation

Ali, Ashiq and Fisch, Jill E. and Kyung, Hoyoun, Implicit Communications and Enforcement of Corporate Disclosure Regulation (August 21, 2019). European Corporate Governance Institute – Finance Working Paper No. 635/2019. Available at SSRN: https://ssrn.com/abstract=3440852 or http://dx.doi.org/10.2139/ssrn.3440852

Ashiq Ali

University of Texas at Dallas - Naveen Jindal School of Management ( email )

800 West Campbell Road, SM41
Richardson, TX 75080-3021
United States
972-883-6360 (Phone)
972-883-6811 (Fax)

HOME PAGE: http://www.utdallas.edu/~axa042200/

Jill E. Fisch

University of Pennsylvania Law School - Institute for Law and Economics, European Corporate Governance Institute ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States
215-746-3454 (Phone)
215-573-2025 (Fax)

Hoyoun Kyung (Contact Author)

University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business ( email )

344 Cornell Hall
Columbia, MO 65211
United States

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