Revealed Proprietary Information Disclosure

Abstract

I propose a methodology to study proprietary information firms disclose prior to Seasoned Equity Offerings. I assess proprietary information disclosures by the magnitude of association between a private information-based proxy and stock returns. Using a difference-in-differences design around the Securities Offering Reform of 2005 that relaxed restrictions on disclosures, I find that equity-issuing firms disclose more than twice as much proprietary information as non-issuing control firms. I corroborate my findings using major customer identity disclosure and three ex ante measures of proprietary information risks. Results are robust after controlling for information flow from insider trading and financial analysts. I also document that disclosure of proprietary information leads to 10–23 percent lower underpricing. Finally, this paper sheds light on unintended consequences of disclosure regulation. While prior regulation constrained managerial disclosure practices to prevent gun jumping, it also restrained legitimate corporate disclosures that may have limited firms’ ability to raise capital.