The Timeliness of Market Reactions to Regulation FD Events

Abstract

This paper examines the timeliness of market reactions to six important Regulation Fair Disclosure (Reg. FD) events using a sample of firms that previously restricted access to conference calls (closed-call) and a sample of firms that voluntarily allowed unlimited real time access to their calls (open-call) in the pre-Reg. FD period. It investigates the point at which any difference in the information asymmetry between the previous open-call firms and the previous closed-call firms vanished during the six events leading to the SEC’s adoption of Reg. FD. We find there is a significant difference in stock price responsiveness between open-call firms and closed-call firms around the first Reg. FD event, while there is no significant difference around the subsequent five events. Our findings are consistent with the prediction from the Choi and Salamon (1995) model that a change in the market perception of the variance of the firm’s disclosure policy can lead to contemporaneous price changes.