Regulation FD and Market Behavior around Earnings Announcements: Is the Cure Worse than the Disease?

Bailey, Warren; Li, Haitao; Mao, Connie X.; Zhong, Rui

doi:10.2139/ssrn.311364

Cited by 10 publications

(27 citation statements)

References 17 publications

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“…Moreover, their measures detected no change in total information released by companies. Bailey, Li, Mao, and Zhong (2002) looked at market and analyst forecast behavior through the second quarter of 2001. They too found a decline in return volatility and an increase in trading volume since Regulation FD.…”

Section: Literature Reviewmentioning

confidence: 99%

Effect of Regulation FD on Asymmetric Information

LeeChun

RosenthalLeonard

GleasonKimberly

2004

Financial Analysts Journal

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Section: Literature Reviewmentioning

confidence: 99%

Effect of Regulation FD on Asymmetric Information

LeeChun

RosenthalLeonard

GleasonKimberly

2004

Financial Analysts Journal

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“…The sender's ability is not observable by any of the agents, including the sender himself. 2 Receivers i ∈ {1, ..., N} can be of types t i ∈ £ t, t ¤ and t i is common knowledge. The state of the world is ω ∈ {0, 1} with equally likely realizations ex ante.…”

Section: The Modelmentioning

confidence: 99%

Reputational cheap talk with misunderstanding

Guembel

Rossetto

2009

Games and Economic Behavior

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We consider a cheap talk game with a sender who has a reputational concern for an ability to predict a state of the world correctly, and where receivers may misunderstand the message sent. When communication between the sender and each receiver is private, we identify an equilibrium in which the sender only discloses the least noisy information.Hence, what determines the amount of information revealed is not the absolute noise level of communication, but the extent to which the noise level may vary. The resulting threshold in transmission noise for which information is revealed may differ across receivers, but is unrelated to the quality of the information channel. When information transmission has to be public, a race to the bottom results: the cut-off level for noise of transmitted information now drops to the lowest cut-off level for any receiver in the audience.JEL Classification: D82, G14, G20.

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“…However, the evidence is mixed on other relevant aspects such as the dispersion and accuracy of analyst forecasts, volatility around earnings announcement, and the degree of information asymmetry and informed trading. For example, with respect to the accuracy or dispersion of analyst forecasts, Shane, et al (2001) and Heflin, et al (2003) find no significant change in either, and Bailey et al (2003) find no increase in the accuracy but significant increases in dispersion. However, Agrawal and Chadha (2002) and Mohanram and Sunder (2001) find increases in both, and Irani and Karamanou (2002) find increases in dispersion.…”

Section: Introductionmentioning

confidence: 99%

“…There is a consensus in the literature that the quantity of voluntary public disclosures increased as reported in, for example, Heflin et al (2003), Bailey et al (2003), and Straser (2002). However, the evidence is mixed on other relevant aspects such as the dispersion and accuracy of analyst forecasts, volatility around earnings announcement, and the degree of information asymmetry and informed trading.…”

Section: Introductionmentioning

confidence: 99%

“…However, Agrawal and Chadha (2002) and Mohanram and Sunder (2001) find increases in both, and Irani and Karamanou (2002) find increases in dispersion. On measures of the information gap, like return volatility around earnings announcement, Heflin, et al (2003), Shane, et al (2001), andEleswarapu, et al (2002) find decreases, but Bailey et al (2003) find no increase after controlling for important factors. Similarly, with respect to the level of information asymmetry reflected in trading costs, Eleswarapu, et al (2002) find that it decreases, consistent with SEC goals to level the playing field, but Straser (2002) The paper proceeds as follows.…”

Section: Introductionmentioning

confidence: 99%

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SEC Regulation Fair Disclosure, Information, and the Cost of Capital

Gomes

Gorton

Madureira

2004

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We empirically investigate the effects of the adoption of Regulation Fair Disclosure ("Reg FD") by the U.S. Securities and Exchange Commission in October 2000. This rule was intended to stop the practice of "selective disclosure," in which companies give material information only to a few analysts and institutional investors prior to disclosing it publicly. We find that the adoption of Reg FD caused a significant reallocation of information-producing resources, resulting in a welfare loss for small firms, which now face a higher cost of capital. The loss of the "selective disclosure" channel for information flows could not be compensated for via other information transmission channels. This effect was more pronounced for firms communicating complex information and, consistent with the investor recognition hypothesis, for those losing analyst coverage. Moreover, we find no significant relationship of the different responses with litigation risks and agency costs. Our results suggest that Reg FD had unintended consequences and that "information" in financial markets may be more complicated than current finance theory admits.

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Regulation FD and Market Behavior around Earnings Announcements: Is the Cure Worse than the Disease?

Cited by 10 publications

References 17 publications

Effect of Regulation FD on Asymmetric Information

Effect of Regulation FD on Asymmetric Information

Reputational cheap talk with misunderstanding

SEC Regulation Fair Disclosure, Information, and the Cost of Capital

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