Truth or Consequences: Mandatory Disclosure and the Impact of the 1934 Act

Details

Author(s):
Publish Date:
May 1, 2012
Format:
Working Paper
Citation(s):
  • Robert M. Daines and Charles M. Jones, Truth or Consequences: Mandatory Disclosure and the Impact of the 1934 Act (draft working paper) (May 2012).

Abstract

The Securities Act of 1933 and Securities Exchange Act of 1934 are foundational regulatory events in US financial history. The Acts required firms listed on U.S. exchanges to disclose details about their financial results and provided a host of public and private enforcement mechanisms, including a new federal agency, to enforce these rules. We ask whether the Act was an improvement on the prior legal regime, where disclosure was left to private contract and state legal rules. We use differences in firms’ pre-Act disclosure policies to study the Act’s effects on bid-ask spreads and other measures of the information environment. We are unable to identify any newly required disclosure that was useful to investors or that improved liquidity. There is evidence however that the Acts’ new enforcement mechanisms allowed firms to credibly commit to making accurate disclosures.