The Informational Effects of Tightening Oil and Gas Disclosure Rules

Abstract

We exploit two regulatory shocks to examine the informational effects of tightening preexisting mandatory disclosure rules. Canadian National Instrument 51‐101 in 2003 and the U.S. rule “Modernization of Oil and Gas Reporting” in 2009 introduced quasi‐identical amendments which effectively tightened the rules governing oil and gas reserve disclosures in both countries. We document significant changes in firms' reporting outcomes when the new regulations are introduced. We also find that the reserve disclosures filed under the new regulations are more closely associated with stock price changes and with decreases in bid‐ask spreads. Our findings are robust to controlling for other confounding factors such as time trends, other information disclosed simultaneously, financial reporting incentives, mispricing, and monitoring efforts.

A Tale of Two Supervisors: Compliance with Risk Disclosure Regulation in the Banking Sector*

“…Finally, we add to the literature on the capital-market effects of corporate risk disclosures (e.g., Jorion 2002;Bischof and Daske 2013;Campbell et al 2014;Hope et al 2016;Badia et al 2020) and provide a systematic assessment of the transparency effects of the Pillar 3 disclosures for banks.…”

Regulatory Approval and Biotechnology Product Disclosures*†

“…However, our paper answers calls to use industry‐specific contexts due to their greater homogeneity in terms of economic contexts and unique value drivers (Shevlin 1996; Barth et al 2005). It also addresses calls to provide appropriate settings to examine certain research questions (see Guo et al (2004) and Xu et al (2007) for biotechnology firms; Rajgopal and Shevlin (2002) and Badia et al (2020) for the oil and gas sector; and Srivastava (2014) for the software industry). Finally, our findings also provide unique insights—such as 10‐K disclosures exceeding those of other channels like 8‐Ks—to motivate future research to better understand how firms choose and trade‐off alternative disclosure channels.…”

“…First, our paper complements the literature examining the impact of regulation on firms' voluntary disclosure. Typical settings consider broad regulations such as the adoption of IFRS (Daske et al 2008; Li et al 2020), as well as industry‐specific regulation such as that pertaining to oil and gas reserves (Badia et al 2020). We complement this research by demonstrating that firms vary their product‐level disclosures in response to FDA regulatory decisions over their product's movement toward marketability and that this occurs for both regulatory approval and denial.…”

Nonfinancial Performance Measures and Risk Taking: Evidence from the Oil and Gas Industry

“…Reporting (MOGR)", which imposed strict rules on how firms can estimate the amount of proved reserves in their disclosures (Badia et al 2020). Prior to the rule, the SEC had allowed firms to recognize proved reserves if the firm had reasonable certainty that the estimated quantity would be recoverable.…”

“…Prior to the rule, the SEC had allowed firms to recognize proved reserves if the firm had reasonable certainty that the estimated quantity would be recoverable. MOGR imposed a stricter definition of reserves, such that there should be at least a 90 percent probability that the quantities actually recovered will equal or exceed the estimate, thus increasing the informativeness of disclosed values of proved reserves (Badia et al 2020).…”