Increased Mandated Disclosure Frequency and Price Formation: Evidence from the 8-K Expansion Regulation

• In Event: Disclosure and Capital Markets

Abstract

This study examines whether more frequent mandated disclosure is associated with faster price formation. Despite regulators’ claims that increased mandated disclosure frequency should provide more timely access to information, prior studies have not found evidence consistent with increases in mandated disclosure leading to more timely price formation. We examine a recent SEC mandate that increased the number of 8-K items that were required to be filed with the SEC on a timely basis. We show that after the regulation there was both an expected increase in the number of 8-K items filed as well as faster price formation and that firms with the largest increases in disclosure experienced the greatest improvements in price formation. A variety of additional analyses and placebo tests provide further support for the notion that mandatory increases in disclosure are associated with improved price formation. Finally, consistent with the mandated increase in disclosure improving firms’ information environments, we find evidence of significant reductions in spreads, and modest evidence of reduced insider trading profitability, for firms with the largest increases in disclosure.

Authors

• Brady Twedt, Indiana University - Bloomington

• Brian P Miller, Indiana University - Bloomington

• Jeff Lawrence McMullin, Indiana University - Bloomington