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An Inconsistency in SEC Disclosure Requirements? The Case of the 'Insignificant' Private Target

26 Pages Posted: 10 Oct 2005  

Usha Rodrigues

University of Georgia School of Law

Mike Stegemoller

Baylor University

Date Written: August 2006

Abstract

Although the SEC's main charge is to ensure the disclosure of material information, the SEC has not always consistently defined materiality. We show that acquisitions of privately-held targets classified as "insignificant" by the SEC appreciably affect market prices, and therefore are "material" by the SEC's definition. We find significant returns in transactions with targets as small as 2% -- compared with the SEC's disclosure threshold of 20% -- of the acquirer. Further, an average of 19 undisclosed private acquisitions per year exceed the median IPO value in the same year for our sample period. However, because the SEC deems these transactions insignificant, information like target financial statements remains undisclosed to the market. Disclosure rules regarding target financial statements thus create a regulatory disconnect, in which information that is "material" is "insignificant" and therefore not disclosed.

Keywords: Takeover, SEC, disclosure, acquisition, merger

JEL Classification: G34, G38

Suggested Citation

Rodrigues, Usha and Stegemoller, Mike, An Inconsistency in SEC Disclosure Requirements? The Case of the 'Insignificant' Private Target (August 2006). Available at SSRN: https://ssrn.com/abstract=813726 or http://dx.doi.org/10.2139/ssrn.813726

Usha Rodrigues

University of Georgia School of Law ( email )

225 Herty Drive
Athens, GA 30602
United States
706-242-5562 (Phone)

Michael Stegemoller (Contact Author)

Baylor University ( email )

P.O. Box 98004
Waco, TX 76798-8004
United States
254-710-4145 (Phone)

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