The Impact of the 2005 Securities Offering Reform on Voluntary Disclosure Before Seasoned Equity Offerings

Abstract

In 2005, the SEC enacted the Securities Offering Reform (Reform), which relaxes ‘gun jumping’ restrictions, thereby allowing firms to more freely disclose information before equity offerings. We examine the effect of the Reform on voluntary disclosure behavior before equity offerings and the associated economic consequences. We find that firms provide significantly more pre-offering disclosures after the Reform. Further, we find that these pre-offering disclosures are associated with a decrease in information asymmetry and a reduction in the cost of raising equity capital. Our findings not only inform the debate on the market effect of the Reform, but also speak to the literature on the relation between voluntary disclosure and information asymmetry by examining the effect of quasi-exogenous changes in voluntary disclosure on information asymmetry, and thus a firm’s cost of capital.