The Information Content of Corporate Earnings: Evidence from the Securities Exchange Act of 1934

Abstract

We examine whether the Securities Exchange Act of 1934 increased the information content of corporate earnings disclosures. Prior research questions whether the Act improved disclosure quality but generally relies on long-window tests and yields mixed results. We focus on whether the Act increased earnings informativeness, improving upon prior designs by focusing on short earnings announcement windows and employing a difference-in-differences design to control for potential contemporaneous structural changes. We document an increase in earnings informativeness following the Act, which is larger for treatment firms (which withheld disclosure before the Act) than for control firms. The increase in informativeness is more pronounced for small firms (consistent with a relatively larger change in enforcement), profitable firms that do not pay dividends (consistent with higher agency costs), and firms reporting good news (which suggests that the Act increased conservatism).