DO THE SEC’S DISCLOSURE RULES AFFECT SHAREHOLDER VALUE?

The Securities and Exchange Commission (SEC) states that, to fulfill its mission of protecting investors and establishing confidence in capital markets, it is imperative that firms maintain a steady flow of timely, comprehensive, and accurate disclosure. As a result, the SEC regulates corporate disclosures. In this study, I examine whether and to what extent the SEC’s final rules on disclosure affect shareholder value. Through a comprehensive event study of 141 SEC disclosure rules, I find that SEC rules on average have no directional effect on firm value. However, approximately 61% of SEC final rules generate significant (directional and absolute) stock price reactions. I find that disclosure rules are more likely to generate positive returns when they are enacted following periods of macroeconomic uncertainty (e.g., Enron/WorldCom frauds, financial crisis of 2008), as well as when they target firms with high information asymmetry, high agency costs, and low proprietary costs. Overall, my results suggest that the majority of SEC disclosure regulation affects firm value, but its directional effect on stock prices is neutral. Furthermore, any positive effects on firm value depend on macroeconomic and firm-specific characteristics.