Mandatory Disclosure in Primary Markets

36 Pages Posted: 12 Feb 2020 Last revised: 25 Feb 2020

Date Written: January 1, 2019


Mandatory disclosure—the idea that companies must be legally required to disclose certain, specified information to public investors—is the first principle of modern securities law. Despite the high costs it imposes, mandatory disclosure has been well defended by legal scholars on two theoretical grounds: ‘Agency costs’ and ‘information underproduction.’ While these two concepts are a good fit for secondary markets (where investors trade securities with one another), this Article shows that they are largely irrelevant in the context of primary markets (where companies offer securities directly to investors). The surprising result is that primary offerings—such as an IPO—may not require mandatory disclosure at all. This profound insight calls into question the fundamental premises of the Securities Act of 1933 and similar laws governing primary offerings around the world. Reform of these rules could lead to a new age of simplified, low-cost primary offerings to the public, something that is already happening in New Zealand through its equity crowdfunding market.

Keywords: Mandatory Disclosure, Securities, Voluntary Disclosure, Agency Costs, IPO, Primary Market, Secondary Market, Information, Crowdfunding

JEL Classification: K00, K12, K2, K20, K22, K23, O1, O16, O3, O38, O40, E5, E51, G3, G32, D64, M13

Suggested Citation

Schwartz, Andrew A., Mandatory Disclosure in Primary Markets (January 1, 2019). Utah Law Review, Vol. 2019, No. 5, pp. 1069-1103, 2019, U of Colorado Law Legal Studies Research Paper No. 20-2, Available at SSRN:

Andrew A. Schwartz (Contact Author)

University of Colorado Law School ( email )

401 UCB
Boulder, CO 80309
United States

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