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Mandatory Disclosure and Stock Returns: Evidence from the Over-the-Counter Market

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  • Allen Ferrell

Abstract

Mandatory disclosure requirements placed on publicly traded firms constitute the core of U.S. securities regulation. Despite their importance, few empirical studies have been done on the impact of mandatory disclosure requirements on the capital markets. Using a unique database created for this study, this paper examines the impact of the 1964 imposition of mandatory disclosure requirements on the over-the-counter (OTC) market in terms of volatility and stock returns. The effect of the 1964 regulatory change has never been examined prior to this paper, despite its being the only fundamental change in disclosure regulation since the original 1930s securities acts. This study finds that mandatory disclosure is associated with both a dramatic reduction in the volatility of OTC stock returns and with OTC stocks enjoying positive abnormal returns.

Suggested Citation

  • Allen Ferrell, 2007. "Mandatory Disclosure and Stock Returns: Evidence from the Over-the-Counter Market," The Journal of Legal Studies, University of Chicago Press, vol. 36(2), pages 213-251, June.
  • Handle: RePEc:ucp:jlstud:v:36:y:2007:p:213-251
    DOI: 10.1086/511898
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    References listed on IDEAS

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    Cited by:

    1. Dharmapala, Dhammika & Khanna, Vikramaditya, 2016. "The Costs and Benefits of Mandatory Securities Regulation: Evidence from Market Reactions to the JOBS Act of 2012," Journal of Law, Finance, and Accounting, now publishers, vol. 1(1), pages 139-186, April.
    2. Hesham Abdelghany, 2015. "The effect of accounting disclosure quality and information asymmetry on the stock market activity ? an applied study on listed companies in the Egyptian stock market," Proceedings of International Academic Conferences 2704127, International Institute of Social and Economic Sciences.
    3. Battalio, Robert & Hatch, Brian & Loughran, Tim, 2011. "Who benefited from the disclosure mandates of the 1964 Securities Acts Amendments?," Journal of Corporate Finance, Elsevier, vol. 17(4), pages 1047-1063, September.
    4. Dhammika Dharmapala, 2016. "Estimating the Compliance Costs of Securities Regulation: A Bunching Analysis of Sarbanes-Oxley Section 404(b)," CESifo Working Paper Series 6180, CESifo Group Munich.
    5. Etienne Farvaque & Catherine Refait-Alexandre & Dhafer Saïdane, 2011. "Corporate disclosure: A review of its (direct and indirect) benefits and costs," International Economics, CEPII research center, issue 128, pages 5-31.

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