Title: Mandated disclosure, stock returns, and the 1964 Securities Acts Amendments
Description: We analyze the last major imposition of mandatory disclosure requirements in US equity markets. The 1964 Securities Acts Amendments extended the requirements to provide audited financial reports, informative proxies, and reports on insider holdings and trades to large firms traded over-the-counter (OTC). We find that firms newly required to make all these types of disclosure had a statistically significant abnormal excess return of about 10% in the year and a half that the law was debated and passed relative to a comparison group of unaffected NYSE/AMEX firms and after adjustment for the standard four-factor model. Furthermore, during this period, these OTC firms outperformed OTC firms for which the proxy and insider trading rules were the only new forms of mandated disclosures. Small OTC firms, which were generally unaffected by the new rules, had the lowest returns. In addition, a firm-level event study analysis demonstrates that complying OTC firms had abnormal excess returns of about 4% in the weeks immediately surrounding the announcement that they would comply with the new disclosure requirements. These results support the hypothesis that mandatory disclosure laws can be an effective means for curtailing diversion by insiders. However, the precise welfare consequences are unknown because we cannot determine how much of the gains to shareholders were a transfer from the insiders of these same companies. Keywords: mandatory disclosure, SEC, securities market regulation. JEL Classifications: G28, G38, K22, L51, M41, N22.