Effect Of Disclosure Regulation Research Articles

A Study on the Target Price Disparate Ratio and the Effect of Disclosure Regulation

This study investigates the determinants of the target price disparate ratio and target price accuracy and the changes by period after controlling for them, to examine the effect of the target price disparate ratio disclosure regulation. The results were as follows. First, the target price disparate ratio has a significant positive(+) effect on the target price error and a negative(-) effect on the target price met. Second, we find that the disparate ratio decreased significantly after the disclosure regulation when the variables were not controlled; however, after controlling for the variables, the disparate ratio increased. Third, the target price error showed no significant change or increase after the disclosure regulation, and the probability of meeting the target price decreased. The results show a significant relationship between the target price disparate ratio and the target price error. Considering this relationship, analysts are expected to improve the target price accuracy by managing the disparate ratio through disclosure regulations. However, this study shows that disclosure regulations are limited, and it is difficult to reduce target price errors and improve the target price accuracy.

Disclosure Regulation and Corporate Acquisitions

This paper examines the effect of disclosure regulation on the takeover market. We study the implementation of a recent European regulation that imposes tighter disclosure requirements regarding the financial and ownership information on public firms. We find a substantial drop in the number of control acquisitions after the implementation of the regulation, a decrease that is concentrated in countries with more dynamic takeover markets. Consistent with the idea that the disclosure requirements increased acquisition costs, we also observe that, under the new disclosure regime, target (acquirer) stock returns around the acquisition announcement are higher (lower), and toeholds are substantially smaller. Overall, our evidence suggests that tighter disclosure requirements can impose significant acquisition costs on bidders and thus slow down takeover activity.

The effect of disclosure regulation on the bias and accuracy of management earnings forecasts in Malaysian IPO prospectuses

PurposeThis paper aims to examine the impact of disclosure regulation on the levels of bias and accuracy in management earnings forecasts disclosed in the prospectuses of Malaysian initial public offering (IPO). Specifically, the authors investigated the two environments of regulation (mandatory versus voluntary) to draw some conclusions regarding the benefits of regulating disclosure of management earnings forecasts.Design/methodology/approachA sample of 111 Malaysian IPOs listing on the Main Market of Bursa Malaysia from January 1, 2004 to February 29, 2012 was used. The paper uses both univariate and multivariate statistical analyses on this sample of IPOs.FindingsThe empirical results of these multivariate regressions indicated that disclosure regulation has positive and significant impact on the bias and accuracy of management earnings forecasts disclosed in IPO prospectus. In general, the study results suggest that using disclosure regulation to improve the quality of IPO earnings forecasts can be, to some extent, an effective strategy.Practical implicationsThe findings of this study have important implications for regulators and investors. The findings can provide them some relevant insights on the improvements to the earnings forecasts accuracy and trends of the forecast (optimistic or pessimistic) after the change from mandatory to voluntary disclosure. Thus, the authorities may learn whether this change is an effective policy or whether the regime of mandatory disclosure was better for IPO companies and should be reversed.Originality/valueThis study is regarded as the first attempt to investigate the impact of reforms in disclosure regulation on the quality of management earnings forecasts of IPO prospectuses in a developing nation such as Malaysia. In spite of this, the paper focuses on a single country, and it contributes significant insights to the debate about the credibility of IPO management earnings forecasts.

Externalities of Disclosure Regulation: The Case of Regulation FD

We use Regulation Fair Disclosure (REG FD) to examine a relatively neglected but important effect of disclosure regulation: externalities. REG FD applies to all publicly traded U.S. firms, but foreign firms cross-listed on U.S. stock exchanges are explicitly exempt. Despite the exemption, we find that many cross-listed firms voluntarily adopt REG FD as part of their disclosure policies. We hypothesize that REG FD imposes two externalities on cross-listed firms. First, following REG FD previously disadvantaged U.S. investors have a lower demand for shares of cross-listed firms that continue to follow a selective disclosure policy. Second, REG FD creates an information spillover effect on cross-listed firms whose values and cash flows are correlated with those of U.S. firms. We find evidence of both effects in cross-listed firms’ voluntary REG FD adoption decisions. Further, relative to non-adopters, cross-listed firms who voluntarily adopt REG FD exhibit a significant reduction in the information asymmetry component of cost of capital. REG FD adopters are also more likely than non-adopters to switch to open disclosure post REG FD. These results suggest that cross-listed firms’ voluntary REG FD adoption represents a credible commitment to increased disclosure transparency.

The Effect of Disclosure Regulation on M&A Activity: Evidence from the Over-the-Counter Market

This paper tests the impact of mandated disclosure regulation on merger & acquisition (M&A) activity by studying the extension of the U.S. mandated disclosure regime to companies trading on the over-the-counter (OTC) securities market, the Securities Acts Amendments of 1964. The Securities Acts Amendments are an excellent test case of the effects on M&A activity due to (i) the large number of affected OTC companies, (ii) the typical paucity of disclosure among OTC companies before the passage of the legislation, (iii) the absence of any severe macroeconomic shocks during the test period and (iv) the natural control group provided by the non-OTC companies not affected by the Securities Acts Amendments. The paper tests the impact of mandated disclosure on M&A activity among OTC companies during the 1955-75 period in two ways, regression analysis and comparison with M&A activity among non-OTC companies. Both tests in the paper strongly support the views of several academics and practitioners that mandated disclosure provides useful information to the market and that this information encourages higher levels of M&A activity.