82 Maryland Law Review __ (forthcoming 2023)
Maryland Law Review, Vol. 82, 2023
68 Pages Posted: 27 Aug 2021 Last revised: 24 Aug 2022
Date Written: August 23, 2021
Each year U.S. public companies collectively spend over fifteen-million hours producing disclosures that undergird a $50 trillion equities market. The procedures firms follow in doing so affect whether their disclosures contain misstatements or omissions. Such errors can in turn cause trading losses for some investors; securities litigation and government enforcement would follow from those losses. Yet despite the importance of the disclosures firms produce, the literature says nothing about how they do it, including whether they are spending too much, too little, or just enough on disclosure.
To address that gap, this Article uses original S&P 1500 surveys and interviews to give the first account of how disclosure is produced and how disclosure procedure affects firms and investors. In short, on a risk-adjusted basis, higher-quality procedures are likelier to produce higher-quality disclosures. That relationship promises social gains if procedures can be identified as higher- or lower-quality and firms adopt higher-quality options. As a first step toward that goal, the Article compares survey respondents’ procedures and presents evidence of divergence among firms. It closes by explaining the need for firms to say more about their procedures in order to generate information that can be used to improve market-wide practice.
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