Not Available for Download

Economic Consequences of SEC Disclosure Regulation: Evidence from the OTC Bulletin Board

Posted: 15 Apr 2004  

Brian J. Bushee

University of Pennsylvania - The Wharton School

Christian Leuz

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Center for Financial Studies (CFS); University of Pennsylvania - Wharton Financial Institutions Center; CESifo Research Network

Multiple version iconThere are 2 versions of this paper

Abstract

This paper examines the economic consequences of a recent regulatory change mandating OTC Bulletin Board firms to comply with the reporting requirements under the 1934 Securities Exchange Act. This change substantially increases the required disclosures for firms that previously did not file with the SEC. We document that the imposition of SEC disclosure requirements results in significant costs for smaller firms, essentially forcing them off the OTCBB. However, SEC disclosure regulation also has significant benefits. Firms filing with the SEC prior to the change experience positive stock returns and permanent increases in liquidity, consistent with positive externalities from disclosure regulation. Moreover, newly compliant firms exhibit significant increases in liquidity upon compliance consistent with the notion that disclosure reduces information asymmetry and improves market liquidity.

Keywords: Mandatory disclosure, Enforcement, Externalities, Over-the-counter market, Liquidity, Listing choices, Eligibility rule

JEL Classification: G18, G38, K22, G39, M41, M45, G12, G14

Suggested Citation

Bushee, Brian J. and Leuz, Christian, Economic Consequences of SEC Disclosure Regulation: Evidence from the OTC Bulletin Board. Journal of Accounting & Economics, Vol. 39, No. 2, 2005. Available at SSRN: https://ssrn.com/abstract=530963

Brian J. Bushee

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-4872 (Phone)
215-573-2054 (Fax)

Christian Leuz (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-1996 (Phone)

HOME PAGE: http://faculty.chicagobooth.edu/christian.leuz/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org

European Corporate Governance Institute (ECGI)

Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Center for Financial Studies (CFS) ( email )

Gr├╝neburgplatz 1
Frankfurt am Main, 60323
Germany

University of Pennsylvania - Wharton Financial Institutions Center

3641 Locust Walk
Philadelphia, PA 19104-6218
United States

CESifo Research Network

Poschinger Str. 5
Munich, DE-81679
Germany

Paper statistics

Abstract Views
2,433