143rd Seminar on Finance and Accounting

Topic: Externalities of Disclosure Regulation: The Case of Regulation FD

 

PresenterProf. KE Bin, professor in accounting, Nanyang Technological University

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Time: May 13, 2011(Friday)3:00—4:30PM

 

Venue: Room 501, Jiageng Bld 2

 

Chair:Jun Ruan, assistant professor in finance, IFAS

 

Abstract:

 

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.

 

Presenter Introduction:

 

Professor Ke Bin obtained his MS from Pennsylvania State University and PhD from Michigan State University. His research interests include financial reporting and disclosure, insider trading, institutional investors, financial analysts, corporate governance, and taxes. His teaching interests include financial accounting, financial statement analysis and US Federal income taxation. He has published in top journals including The Accounting Review, Journal of Accounting Research, Review of Accounting Studies, Contemporary Accounting Research and Journal of Accounting and Economics.

 

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