Regulation FD and the Financial Information Environment: Early Evidence

2003 ◽  
Vol 78 (1) ◽  
pp. 1-37 ◽  
Author(s):  
Frank Heflin ◽  
K. R. Subramanyam ◽  
Yuan Zhang
Keyword(s):  
Stock Prices ◽  
Earnings Announcements ◽  
Relevant Information ◽  
Financial Information ◽  
Earnings Forecast ◽  
Forecast Errors ◽  
Informational Efficiency ◽  
The Public ◽  
Fair Disclosure ◽  
Regulation Fd

On October 23, 2000, the SEC implemented Regulation FD (Fair Disclosure), which prohibits firms from privately disclosing value-relevant information to select securities markets professionals without simultaneously disclosing the same information to the public. We examine whether Regulation FD's prohibition of selective disclosure impairs the flow of financial information to the capital markets prior to earnings announcements. After implementation of FD, we find (1) improved informational efficiency of stock prices prior to earnings announcements, as evidenced by smaller deviations between pre-and post-announcement stock prices; (2) no reliable evidence of change in analysts' earnings forecast errors or dispersion; and (3) a substantial increase in the volume of firms' voluntary, forward-looking, earnings-related disclosures. Overall, we find no evidence Regulation FD impaired the information available to investors prior to earnings announcements, and some of our evidence is consistent with improvement.

scholarly journals Asymmetric Price Adjustment: Are IPO Prices too "Sticky"?

2011 ◽  
Vol 7 (5) ◽  
Author(s):  
Michael Adams ◽  
Barry Thornton ◽  
Russ Baker
Keyword(s):  
Market Efficiency ◽  
Stock Prices ◽  
Stock Price ◽  
Investor Sentiment ◽  
Relevant Information ◽  
Price Adjustment ◽  
Informational Efficiency ◽  
Long Run ◽  
New Information ◽  
Short Run

The study of IPO mispricing is salient because it raises important questions concerning market efficiency and the existence of systematic stock patterns that can be employed by investors to generate excess market returns. The purpose of this paper is to investigate the informational efficiency of IPO market prices with respect to the first 3 trading day’s return and to examine the effect of varying investor sentiment on this information efficiency.  Under traditional definitions of market efficiency, asset prices, including IPO prices should fully reflect all available and relevant information (Fama 1970).  An increasing body of empirical evidence, however, suggests that IPO prices are not efficient as evidenced both in the short run and the long run.  The speed of incorporation of new information into stock prices is critical to many central issues in financial research, such as market efficiency, arbitrage, and market structure. This paper analyzes the speed of price adjustment to information events for IPOs. The setting of the immediate aftermarket presents an opportunity to investigate the issue when little or no trading history exists. In such a setting, investors are more exposed to new information because they cannot observe the stock price behavior or the reactions to previous information signals.

Short-Selling and Information Arrival around Earnings Announcements: Evidence from Regulation SHO

2021 ◽  
Author(s):  
Greg Clinch ◽  
Wei Li
Keyword(s):  
Stock Prices ◽  
Earnings Announcements ◽  
Public Information ◽  
Short Selling ◽  
Price Informativeness ◽  
The Public ◽  
Short Sellers ◽  
Information Release ◽  
Negative News ◽  
Shed Light

Short sellers assist in impounding negative news more quickly into stock prices and improve price informativeness. However, there is a lack of consistent evidence about whether short sellers trade predominantly in anticipation of, or in response to, a public information release. To shed light on this question, we exploit Reg SHO, which reduced the constraints faced by short sellers for a subsample of U.S. firms, to examine price informativeness before, during and after earnings announcements. We show that relative to control firms, pilot firms have greater (less) price informativeness before (during) earnings announcements, suggesting that short sellers trade in anticipation of public earnings news, rather than in response to the public news.

scholarly journals The Informativeness Of Cash Flow Forecasts And The Regulation FD Environment

2011 ◽  
Vol 9 (6) ◽  
pp. 29
Author(s):  
Karin A. Petruska
Keyword(s):  
Cash Flow ◽  
Forecast Accuracy ◽  
Time Frame ◽  
Earnings Forecast ◽  
Forecast Errors ◽  
Prior Literature ◽  
Regulation Fd ◽  
Mere Existence ◽  
Cash Flow Forecasts ◽  
Cash Flow Forecast

Prior literature shows that analysts forecast estimates serve as a proxy for the markets and investors beliefs which are unobservable. For decades, analysts have generated forecasts for use in valuation models including future estimates of earnings and growth. Yet, only recently, analysts have begun to voluntarily provide cash flow per share forecasts at the same time they are producing earnings per share forecasts for firms they follow. This study addresses whether the tendency of analysts to issue cash flow per share forecasts, as a result of changes in the regulatory environment, affects forecast properties. By examining the time frame surrounding Regulation FD, the analysis provides evidence that both the mere existence and the relative measure of analysts cash flow per share forecasts differ in explaining analysts earnings forecast accuracy. Specifically, the empirical results demonstrate that the relative value of analysts cash flow forecasts, the implied value of unexpected accruals, and cash flow forecast errors facilitate the reduction in analysts earnings forecast errors subsequent to the passage of Regulation FD. Further, the inverse relation between these analysts inputs and earnings forecast errors appear to be driven by firms with more accurate cash flow forecasts.

Can Transient Institutions Correctly Interpret Small Negative Earnings Surprises in the Absence of Access to Management’s Private Information?

2017 ◽  
Vol 33 (1) ◽  
pp. 3-33 ◽  
Author(s):  
Gang Hu ◽  
Bin Ke ◽  
Yong Yu
Keyword(s):  
Private Information ◽  
Stock Prices ◽  
Stock Price ◽  
Informational Efficiency ◽  
Regulation Fair Disclosure ◽  
Share Prices ◽  
Earnings Surprise ◽  
Fair Disclosure ◽  
Earnings Surprises ◽  
Negative Earnings

Using a proprietary database of institutional investors’ daily stock trading records in the post–Regulation Fair Disclosure (FD) period, this study examines whether transient institutions have the independent ability to correctly process small negative earnings surprise announcements, which management claims transient institutions have difficulty in interpreting. We find economically significant abnormal selling by transient institutions in response to small negative earnings surprises. Transient institutions’ selling in response to small negative earnings surprises is also associated with significant contemporaneous stock price declines. However, we find no evidence that transient institutions’ trading in response to small negative earnings surprises is an overreaction as there is no reversal of stock prices subsequent to transient institutions’ trading. More importantly, we show that transient institutions’ trading in response to small negative earnings surprises helps improve the informational efficiency of share prices.

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

2006 ◽  
Vol 6 (1) ◽  
pp. 70-94 ◽  
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.

An Empirical Analysis Of The Value Line Earnings Predictability Index

2011 ◽  
Vol 9 (4) ◽  
pp. 104 ◽  
Author(s):  
Suzanne M. Luttman ◽  
Peter A. Silhan
Keyword(s):  
Empirical Analysis ◽  
Stock Prices ◽  
Earnings Forecast ◽  
Forecast Errors ◽  
Forecasting Accuracy ◽  
Predictability Index ◽  
Ex Ante ◽  
Earnings Predictability ◽  
Measure Index

The earnings of some companies are easier to analyze and predict than others. Because earnings predictability affects stock prices, investors and researchers have relied on a variety of indexes, such as the Value Line Earnings Predictability Index (VLPI), to gauge ex ante differences in predictability. This study empirically analyzes the performance of VLPI versus several other indexes. Rank correlations with subsequent earnings forecast errors are used to measure index performance. Interestingly, the results indicate that VLPI performs as well as a corresponding index based on past forecasting accuracy.

Tax-Advantaged Trust Use Among IPO Executives: Determinants and Implications for Valuation and Future Performance

2019 ◽  
Vol 95 (3) ◽  
pp. 145-175 ◽  
Author(s):  
Michael J. Dambra ◽  
Matthew Gustafson ◽  
Phillip J. Quinn
Keyword(s):  
Stock Price ◽  
Relevant Information ◽  
Data Availability ◽  
Market Prices ◽  
The Public ◽  
Future Performance ◽  
Estate Taxes ◽  
Price Appreciation ◽  
One Year ◽  
Jel Classifications

ABSTRACT We examine the prevalence and determinants of CEOs' use of tax-advantaged trusts prior to their firm's IPO. Twenty-three percent of CEOs use tax-advantaged pre-IPO trusts, and share transfers into tax-advantaged trusts are positively associated with CEO equity wealth, estate taxes, and dynastic preferences. We project that pre-IPO trust use increases CEOs' dynastic wealth by approximately $830,000, on average. We next examine a simple model's prediction that trust use will be positively related to IPO-period stock price appreciation. We find that trust use is associated with 12 percent higher one-year post-IPO returns, but is not significantly related to the IPO's valuation, filing price revision, or underpricing. This evidence is consistent with CEOs' personal finance decisions prior to the IPO containing value-relevant information that is not immediately incorporated into market prices. JEL Classifications: D14; G12; G32; M21; M41. Data Availability: Data are available from the public sources cited in the text.

UNDERSTANDING PERCEPTIONS OF CHANGE: A PATHWAYS CONTRIBUTION TO COMMUNITY CONSULTATION AND ENVIRONMENTAL DECISION-MAKING

2004 ◽  
Vol 06 (02) ◽  
pp. 189-211 ◽  
Author(s):  
MARK LEMON ◽  
PAUL JEFFREY ◽  
BRIAN S. MCINTOSH ◽  
TIM OXLEY
Keyword(s):  
Environmental Change ◽  
Relevant Information ◽  
Clear Understanding ◽  
Community Consultation ◽  
The Public ◽  
Environmental Decision Making ◽  
Individual Perceptions ◽  
Time Space ◽  
The Uk

Participation has become part of the language of environmental management. While this move is positive there remains a danger that overly formalised and restricted participatory procedures, in terms of the information sought, may constrain and hinder dialogue and learning between the public and management agencies. Responses to specific issues are often sought from members of the public without a clear understanding about whether those issues are salient to them, where they are salient or how they fit into multiple and dynamic interpretations of environmental change. This paper uses case study material from the UK to demonstrate a novel Pathways Approach to the recording and analysis of individual perceptions about environmental change. The approach seeks to concentrate on experience and interpretation and is based on the conceptualisation of perceived cause–effect relationships and the pathways that support them. The links between time, space and community are considered within this analysis, as is the potential for improved participation through the provision of policy relevant information to planners and environmental managers operating in complex, multi-perspective situations.

Stock Price Behavior Associated with Post-1974–75 LIFO Adoptions Announced at Alternative Disclosure Times

1996 ◽  
Vol 11 (4) ◽  
pp. 535-564 ◽  
Author(s):  
Morton Pincus ◽  
Charles E. Wasley
Keyword(s):  
Stock Prices ◽  
Stock Price ◽  
Earnings Announcements ◽  
Market Response ◽  
Price Behavior ◽  
Positive Information ◽  
Earnings Announcement ◽  
Earnings Growth ◽  
Adoption Decision ◽  
Annual Earnings

We examine the behavior of stock prices at the time of post-1974–75 LIFO adoption announcements. We exploit recent theoretical and empirical developments in the LIFO adoption literature in an attempt to resolve some of the mixed findings in Hand (1993). We study LIFO adoptions announced prior to as well as at the time of annual earnings announcements. Previous research has mostly centered on 1974–75 adoptions made at the time of annual earnings announcements. Our study of LIFO adoptions announced prior to annual earnings announcement dates enables us to provide evidence on whether the early announcement of a LIFO adoption is used by firms to signal positive information about earnings growth. Collectively, our results suggest that in explaining the market response to LIFO adoption announcements, extant models of the LIFO adoption decision do not fully capture the richness of differing inflationary environments or of alternative disclosure times.

The Association between Unsystematic Security Returns and the Magnitude of Earnings Forecast Errors

1979 ◽  
Vol 17 (2) ◽  
pp. 316 ◽  
Author(s):  
William H. Beaver ◽  
Roger Clarke ◽  
William F. Wright
Keyword(s):  
Earnings Forecast ◽  
Forecast Errors ◽  
Security Returns
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