Event-Based Materiality: An Exploratory Study in Response to Sarbanes-Oxley Section 409 and Regulation Fair Disclosure

39 Pages Posted: 12 Sep 2006

See all articles by Robert E. Pinsker

Robert E. Pinsker

Florida Atlantic University

Terence Pitre

University of St. Thomas

Ronald Daigle

Sam Houston State University

Date Written: September 11, 2006

Abstract

Both Section 409 of the Sarbanes-Oxley Act (2002) and Regulation Fair Disclosure (2000) were created to significantly improve the timeliness of disclosures and help specify which events should be deemed material. We examine if nonprofessional investors can correctly discriminate-and subsequently assess-material events from immaterial events. We conduct a series of experimental asset markets where participants acting as investors are presented with sequential pieces of information regarding events that are either material or immaterial (as defined by the SEC).

Our findings indicate that nonprofessional investors do not accurately discriminate between material and immaterial events as reflected by trading prices. Also, we find that subsequent disclosures increase investors' pre-disclosure knowledge base resulting in an increase in homogeneity of investors' beliefs at the end of a sequence relative to the beginning of the sequence. The increase in the homogeneity of beliefs results in relatively lower trading volume.

Keywords: materiality, nonprofessional investors, Sarbanes-Oxley Act, Fair Disclosure

JEL Classification: C99, M41

Suggested Citation

Pinsker, Robert E. and Pitre, Terence J. and Daigle, Ronald, Event-Based Materiality: An Exploratory Study in Response to Sarbanes-Oxley Section 409 and Regulation Fair Disclosure (September 11, 2006). Available at SSRN: https://ssrn.com/abstract=929477 or http://dx.doi.org/10.2139/ssrn.929477

Robert E. Pinsker (Contact Author)

Florida Atlantic University ( email )

Boca Raton, FL 33431
United States

Terence J. Pitre

University of St. Thomas ( email )

2115 Summit Avenue
St. Paul, MN 55105
United States

Ronald Daigle

Sam Houston State University ( email )

1803 Ave I
Huntsville, TX 77341
United States

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