Spillover Effects of Mandatory Portfolio Disclosures on Corporate Investment

89 Pages Posted: 12 Nov 2021 Last revised: 16 Jan 2024

See all articles by Jalal Sani

Jalal Sani

University of Illinois at Urbana-Champaign

Nemit Shroff

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Hal D. White

University of Notre Dame

Date Written: September 25, 2021

Abstract

This paper examines whether portfolio disclosure requirements for actively managed investment funds affect the investment decisions of the firms they own. We argue that mandatory portfolio disclosures reduce fund managers’ incentive to collect and trade on private information, which reduces the stock price informativeness of their portfolio, and thus portfolio firm managers’ ability to learn from their firms’ stock prices. Using a difference-in-differences design around the May 2004 SEC regulation requiring more frequent fund disclosure, we find that investment sensitivity to stock price declines for firms with significant ownership held by actively managed funds affected by the regulation. The decline in investment-price sensitivity is concentrated among firms that are (i) owned by funds with larger expected proprietary costs and (ii) more likely to learn from price. Our results suggest that portfolio disclosure requirements have spillover effects on corporate investment by curtailing managers’ opportunities to learn from price.

Keywords: Mandatory portfolio disclosure, Proprietary cost, Information acquisition, Real effects of financial markets, Corporate investment

JEL Classification: G14, G23, G28, M40, M41

Suggested Citation

Sani, Jalal and Shroff, Nemit and White, Hal D., Spillover Effects of Mandatory Portfolio Disclosures on Corporate Investment (September 25, 2021). Journal of Accounting & Economics (JAE), Vol. 76, No. 2-3, 2023, Available at SSRN: https://ssrn.com/abstract=3952858 or http://dx.doi.org/10.2139/ssrn.3952858

Jalal Sani (Contact Author)

University of Illinois at Urbana-Champaign ( email )

601 E John St
Champaign, IL Champaign 61820
United States

Nemit Shroff

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main St.
E62-688
Cambridge, MA MA 02142
United States
6173240805 (Phone)

HOME PAGE: http://mitsloan.mit.edu/faculty/detail.php?in_spseqno=51407&co_list=F

Hal D. White

University of Notre Dame ( email )

389C Mendoza College of Business
University of Notre Dame
Notre Dame, IN 46556
United States
574-361-3809 (Phone)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
617
Abstract Views
2,115
Rank
78,761
PlumX Metrics