Did Regulation Fair Disclosure Prevent Selective Disclosure? Direct Evidence from Intraday Volume and Returns

Do Analysts Follow Managers Who Switch Companies? An Analysis of Relationships in the Capital Markets

The Accounting Review ◽

10.2308/accr-50636 ◽

2013 ◽

Vol 89 (2) ◽

pp. 451-482 ◽

Cited By ~ 32

Author(s):

Francois Brochet ◽

Gregory S. Miller ◽

Suraj Srinivasan

Keyword(s):

Capital Markets ◽

Data Availability ◽

Professional Relationships ◽

Matched Sample ◽

Regulation Fair Disclosure ◽

Analyst Coverage ◽

Listed Firms ◽

Fair Disclosure ◽

Carry Over ◽

Selective Disclosure

ABSTRACT We examine the importance of professional relationships developed between analysts and managers by investigating analyst coverage decisions in the context of CEO and CFO moves between publicly listed firms. We find that top executive moves from an origin firm to a destination firm trigger analysts following the origin firm to initiate coverage of the destination firm in 10 percent of our sample, which is significantly higher than in a matched sample. Analyst-manager “co-migration” is significantly stronger when both firms are within the same industry. Analysts who move with managers to the destination firm exhibit more intense and accurate coverage of the origin firm than they do in other firms and compared to other analysts covering the origin firm. The advantage no longer holds after the executive's departure, and most of the analysts' advantage does not carry over to the destination firm. However, the analysts do increase the overall market capitalization of firms in their coverage portfolio. Our results hold after Regulation Fair Disclosure, suggesting that these relationships are not based on selective disclosure. Overall, the evidence shows both the importance and limitations of professional relationships in capital markets. Data Availability: Data are publicly available from sources identified in the article.

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The Impact of Regulation Fair Disclosure: Trading Costs and Information Asymmetry

Journal of Financial and Quantitative Analysis ◽

10.1017/s0022109000003045 ◽

2004 ◽

Vol 39 (2) ◽

pp. 209-225 ◽

Cited By ~ 157

Author(s):

Venkat R. Eleswarapu ◽

Rex Thompson ◽

Kumar Venkataraman

Keyword(s):

Information Asymmetry ◽

Securities And Exchange Commission ◽

Return Volatility ◽

Trading Costs ◽

Regulation Fair Disclosure ◽

Fair Disclosure ◽

Regulation Fd ◽

Material Information ◽

The Impact ◽

Selective Disclosure

AbstractIn October 2000, the Securities and Exchange Commission (SEC) passed Regulation Fair Disclosure (FD) in an effort to reduce selective disclosure of material information by firms to analysts and other investment professionals. We find that the information asymmetry reflected in trading costs at earnings announcements has declined after Regulation FD, with the decrease more pronounced for smaller and less liquid stocks. Return volatility around mandatory announcements is also lower but overall information flow is unchanged when mandatory and voluntary announcements are combined. Thus, the SEC appears to have diminished the advantage of informed investors, without increasing volatility.

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Institutional investors and acquisition targets

Corporate Ownership and Control ◽

10.22495/cocv9i3c4art2 ◽

2012 ◽

Vol 9 (3) ◽

pp. 428-441

Author(s):

Lily Qi ◽

Hong Wan

Keyword(s):

Mutual Funds ◽

Institutional Investors ◽

Institutional Ownership ◽

Pension Funds ◽

Public Pension ◽

Turnover Rates ◽

Regulation Fair Disclosure ◽

High Turnover ◽

Fair Disclosure ◽

Selective Disclosure

Firms with higher levels of institutional ownership are more likely to be acquired. This paper shows that this positive correlation is due to ownership endogeneity. Institutional investors are better informed investors and buy acquisition targets. After controlling for this ownership endogeneity, the presence of institutional investors reduces the probability of being acquired. Our result further shows that mutual funds or funds with high turnover rates are more likely to benefit from selective disclosure prior to Regulation Fair Disclosure and the presence of public pension funds increases the announcement premiums that targets receive, which indicates a monitoring effect.

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The Influence of Disclosure Regulation on Selective Disclosure: Impact on Difficult-to-Measure Reporting Activities and the Importance of Assurance Services

Accounting and the Public Interest ◽

10.2308/api.2006.6.1.70 ◽

2006 ◽

Vol 6 (1) ◽

pp. 70-94 ◽

Cited By ~ 1

Author(s):

Diane J. Janvrin ◽

James M. Kurtenbach

Keyword(s):

Financial Information ◽

Corporate Disclosure ◽

Regulation Fair Disclosure ◽

Disclosure Regulation ◽

The Public ◽

Market Participants ◽

Fair Disclosure ◽

Phone Calls ◽

Assurance Services ◽

Selective Disclosure

The objective of recent disclosure regulation (e.g., Regulation Fair Disclosure [FD]) is to reduce selective disclosure, the practice of releasing financial information to selected users before publicly disclosing the information. Prior to FD, providers used narrow distribution reporting activities, such as phone calls and one-on-one meetings with analysts, reviews of analysts' earnings estimates, and analysts' contracts with suppliers and firm employees, to communicate private financial information to selected users at the expense of uninformed users. Public interest theorists view regulation as a means to protect the public. We predict that if FD is effective, providers will move away from narrow reporting activities and reduce the probability that selected users can achieve a competitive advantage over the general investing public. In addition, assuming that reducing selective disclosure increases the number of market participants receiving information, we argue that the importance of assurance services will increase since FD (1) reduces users' ability to evaluate the credibility of provider information based on personal relationships with providers, and (2) increases the pressure on provider investor relations personnel to monitor the amount and credibility of information disclosed to decrease the likelihood that market participants view the information released as unreliable. Due to the lack of available empirical data related to narrow reporting activities and the importance of assurance services, we employ a field-based questionnaire of providers and users to address these issues. Results indicate that (1) providers and users perceive that narrow distribution reporting activities still exist, and (2) reducing users' personal access to providers may increase the importance of assurance services. The study increases our understanding of how regulation to reduce selective disclosure may protect the public by examining its impact on corporate disclosure activities and policies.

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