A Study of the Economic Consequences of Regulation Fd (Fair Disclosure)

Posted: 11 Feb 2004

See all articles by Afshad J. Irani

Afshad J. Irani

Washington and Lee University

Irene Karamanou

University of Cyprus - Department of Public and Business Administration

Abstract

In this paper we examine the market reaction to the events that led to the adoption of Regulation Fair Disclosure (FD). The new regulation requires that if and when a firm discloses material nonpublic information to select individuals like analysts and institutional investors, it must make public announcement of that information immediately if the disclosure was intentional and promptly if it was unintentional. The rule has triggered a tremendous amount of debate as opponents raise the concern that the rule will result in a reduction in the amount and quality of information disseminated to the market. The SEC maintains that the rule will result in fairer markets. The stock market reaction around significant FD events supports the SEC's position. In particular, firms with poor information environments and greater propensity to selectively disclose information exhibit significantly positive abnormal returns on the first date that major provisions of the expected regulation are made public.

Keywords: Regulation FD, economic consequences, information environment

JEL Classification: G29, K22, M41, M45

Suggested Citation

Irani, Afshad Jeevan and Karamanou, Irene, A Study of the Economic Consequences of Regulation Fd (Fair Disclosure). Research in Accounting Regulation, Vol. 17, 2004. Available at SSRN: https://ssrn.com/abstract=499384

Afshad Jeevan Irani (Contact Author)

Washington and Lee University ( email )

204 West Washington Street
Lexington, VA 24450
United States
5404588628 (Phone)

Irene Karamanou

University of Cyprus - Department of Public and Business Administration ( email )

75 Kallipoleos Street
P.O. Box 20537
Nicosia CY-1678
CYPRUS
+357 2 892471 (Phone)
+357 2 892460 (Fax)

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