Voluntary Disclosure and Information Asymmetry: Evidence from the 2005 Securities Offering Reform
Accepted by Christian Leuz. We are grateful for helpful comments and guidance from the editor and an anonymous referee. We also thank Ashiq Ali, Beth Blankespoor, Dan Givoly, Michelle Hanlon, Salma Ibrahim, Henock Louis, Greg Miller, Chander Shekhar, Abbie Smith, Rodrigo Verdi, Joe Weber, and workshop participants at Baruch College, College of William and Mary, Florida State University, George Washington University, National University of Singapore, Penn State University, Singapore Management University, Southern Methodist University, Texas A&M University, the University of Texas at Dallas, University of Houston, 2009 AAA meeting, and 2009 FMA conference. We thank RavenPack for generously sharing the data on worldwide media coverage. Hal White acknowledges financial support from Ernst and Young, and Weining Zhang acknowledges financial support from NUS Business School. An online appendix with additional results untabulated in the paper is available for download here: http://research.chicagobooth.edu/arc/journal/onlineappendices.aspx.
In 2005, the Securities and Exchange Commission enacted the Securities Offering Reform (Reform), which relaxes “gun-jumping” restrictions, thereby allowing firms to more freely disclose information before equity offerings. We examine the effect of the Reform on voluntary disclosure behavior before equity offerings and the associated economic consequences. We find that firms provide significantly more preoffering disclosures after the Reform. Further, we find that these preoffering disclosures are associated with a decrease in information asymmetry and a reduction in the cost of raising equity capital. Our findings not only inform the debate on the market effect of the Reform, but also speak to the literature on the relation between voluntary disclosure and information asymmetry by examining the effect of quasi-exogenous changes in voluntary disclosure on information asymmetry, and thus a firm's cost of capital.