Regulation Fair Disclosures Effects on the Cost of Capital: Financial Innovation or Policy Failure
We theoretically investigate the effects of the adoption of Regulation Fair Disclosure by the U.S. Securities and Exchange Commission. As a kind of financial innovation by American regulators, it was intended to stop the practice of selective disclosure. But it also caused a significant reallocation of information, resulting in higher cost of capital to small firms, which was taken as policy failure. Through an asset pricing model based on rational expectation equilibrium, the paper shows that the increase of the proportion of public information may lead the increase or decrease of the cost of capital, which depends on specific condition. Because the increase of information level by increase of public information amount may not compensate the decrease of information level by decrease of private information amount and lowering of equilibrium prices information transmission effect. Our study suggests that Regulation Fair Disclosure had unintended consequences and that Information in financial markets may be more complicated than current finance theory admits.
listed firms Regulation Fair Disclosure the cost of capital rational expectation equilibrium
Li Ming-yi Hui Xiao-feng
School of Management Harbin Institute of Technology Harbin, China
国际会议
上海
英文
2007-09-21（万方平台首次上网日期，不代表论文的发表时间）