Mandatory Disclosure, Asymmetric Information and Liquidity: The Impact of the 1934 Act

35 Pages Posted: 23 Mar 2005  

Charles M. Jones

Columbia Business School - Finance and Economics

Robert Daines

Stanford Law School; Stanford Graduate School of Business

Date Written: March 15, 2005

Abstract

We study the effect of the Securities Exchange Act of 1934 on common stock bid-ask spreads and other information measures. Among other things, the 1934 Act mandated a complete, audited income statement and balance sheet. Prior to the 1934 Act, some firms disclosed sales or depreciation, and some chose not to. Some firms reported audited financials; some did not. If disclosures and audits reduce information asymmetries, the 1934 Act should have a differential effect across these stocks. We find that a firm's disclosure status in 1933 has little to do with the evolution of its information measures. Overall, we find that cross-sectional differences in mandatory disclosure had little measurable effect on the degree of information asymmetry.

JEL Classification: G14, K22, N22

Suggested Citation

Jones, Charles M. and Daines, Robert, Mandatory Disclosure, Asymmetric Information and Liquidity: The Impact of the 1934 Act (March 15, 2005). AFA 2006 Boston Meetings Paper. Available at SSRN: https://ssrn.com/abstract=686888 or http://dx.doi.org/10.2139/ssrn.686888

Charles M. Jones (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States
(212) 854-5553 (Phone)

HOME PAGE: http://www.columbia.edu/~cj88/

Robert Daines

Stanford Law School ( email )

559 Nathan Abbott Way
Stanford, CA 94305-8610
United States
650-736-2684 (Phone)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

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