The Information Content and Investor Reaction to SEC Disclosures by Foreign Firms

• In Event: Disclosure Regulation

Abstract

The SEC does not require US-listed foreign firms to provide ongoing disclosures beyond what is mandated by their home country, which gives firms from less rigorous home reporting regimes more latitude on the amount and type of information supplied to US investors. Using foreign firm reporting of material events via SEC Form 6-K, we find that firms incorporated in countries with lower disclosure and reporting requirements, and those trading only on a US exchange have a lower propensity to file 6-Ks. Further, 6-Ks filed by firms with these characteristics yield greater investor interest and a stronger market reaction. Firms filing 6-Ks more frequently exhibit lower residual uncertainty when reporting annual earnings. Our results suggest that 6-Ks are an important disclosure medium that both facilitates price discovery and reduces information asymmetries between foreign firms and US investors, especially for firms originating from more opaque information environments.

Authors

• Audra Boone, U.S. Securities and Exchange Commission

• Kathryn Schumann, James Madison University

• Joshua Tyler White, university of georgia