TY  - JOUR
AU  - Gomes,Armando
AU  - Gorton,Gary
AU  - Madureira,Leonardo
TI  - SEC Regulation Fair Disclosure, Information, and the Cost of Capital
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10567
PY  - 2004
Y2  - June 2004
UR  - http://www.nber.org/papers/w10567
L1  - http://www.nber.org/papers/w10567.pdf
N1  - Author contact info:
Armando Gomes
Olin School of Business
Washington University
Campus Box 1133
1 Brookings Drive
St Louis, MO 63130
E-Mail: gomes@olin.wustl.edu

Gary B. Gorton
Yale School of Management
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
Fax: 203/432-8931
E-Mail: Gary.Gorton@yale.edu

Leonardo Madureira
E-Mail: madureil@wharton.upenn.edu
M2  - featured in NBER digest on 2005-02-01
AB  - 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.
ER  -