Regulation Fd and the Financial Information Environment: Early Evidence

Posted: 16 Dec 2002

See all articles by Frank Heflin

Frank Heflin

University of Georgia - J.M. Tull School of Accounting

K.R. Subramanyam

University of Southern California - Leventhal School of Accounting

Yuan Zhang

University of Texas at Dallas

Abstract

On October 23, 2000, the SEC implemented Regulation FD (Fair Disclosure), which prohibits firms from privately disclosing value relevant information to select securities markets professionals without simultaneously disclosing the same information to the public. We examine whether Regulation FD's prohibition of selective disclosure impairs the flow of financial information to the capital markets prior to earnings announcements. After implementation of FD, we find (1) improved informational efficiency of stock prices prior to earnings announcements, as evidenced by smaller deviations between pre- and post-announcement stock prices; (2) no reliable evidence of change in analysts' earnings forecast errors or dispersion; and (3) a substantial increase in the volume of firms' voluntary, forward-looking, earnings-related disclosures. Overall, we find no evidence Regulation FD impaired the information available to investors prior to earnings announcements, and some of our evidence is consistent with improvement.

Keywords: disclosure, regulation, earnings announcements, capital markets, earnings forecasts, financial analysts

JEL Classification: G14, G28, G29, K22, M41

Suggested Citation

Heflin, Frank and Subramanyam, K.R. and Zhang, Yuan, Regulation Fd and the Financial Information Environment: Early Evidence. Accounting Review, January 2003. Available at SSRN: https://ssrn.com/abstract=345420

Frank Heflin

University of Georgia - J.M. Tull School of Accounting ( email )

Athens, GA 30602
United States
706-542-1616 (Phone)
706-542-3630 (Fax)

K.R. Subramanyam (Contact Author)

University of Southern California - Leventhal School of Accounting ( email )

Los Angeles, CA 90089-0441
United States
213-740-5017 (Phone)
213-747-2815 (Fax)

Yuan Zhang

University of Texas at Dallas ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

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