Disclosure Committees: Implications for Disclosure Quality and Timeliness

Abstract

To help companies comply with the certification requirements under Section 302 of SOX, the SEC recommends issuers form a disclosure committee, ‘for considering the materiality of information and determining disclosure obligations on a timely basis’ (SEC 2002a). While the importance of disclosure committees has been acknowledged by practice, little academic research has examined disclosure committees. In this study, we examine the effects of disclosure committees on disclosure quality and timeliness. We find that the presence of disclosure committees is associated with higher quality and more timely corporate disclosure. These results are distinct from the effects of other documented corporate governance mechanisms and robust to the use of controls for potential correlated omitted variables and endogeneity. In addition, we provide evidence that the benefits of disclosure committees on disclosure quality are greater if membership detail is publicly revealed and that benefits of the committee may be greatest for firms that experience a negative disclosure event. Lastly, we provide evidence that disclosure committees are associated with higher quality earnings announcements and lower likelihood of receiving a severe SEC comment letter. Collectively these results suggest disclosure committees are not merely ‘window dressing’, a conclusion with implications for practitioners, regulators, and academics interested in improving corporate disclosure practices.

Keywords: Disclosure Committee; Corporate Governance; Disclosure Quality; Disclosure Timeliness

JEL Classification: M41; M48