Armando Gomes, Gary Gorton, Leonardo Madureira

Bibliographic Information

NBER Working Paper No. 10567
Issued in June 2004
NBER Program(s):AP, CF, IO

A non-technical summary of this paper is available in the February 2005 NBER Digest.  You can sign up to receive the NBER Digest by email.

Published: Gomes, Armando, Gary Gorton and Leonardo Madureira. "SEC Regulation FD, Information, and the Cost of Capital.” Journal of Corporate Finance 13, 2-3 (June 2007): 300-334. citation courtesy of

Available Formats


We empirically investigate the effects of the adoption of Regulation Fair Disclosure ( Reg FD') by the U.S. Securities and Exchange Commission in October 2000. This rule was intended to stop the practice of selective disclosure,' in which companies give material information only to a few analysts and institutional investors prior to disclosing it publicly. We find that the adoption of Reg FD caused a significant reallocation of information-producing resources, resulting in a welfare loss for small firms, which now face a higher cost of capital. The loss of the selective disclosure' channel for information flows could not be compensated for via other information transmission channels. This effect was more pronounced for firms communicating complex information and, consistent with the investor recognition hypothesis, for those losing analyst coverage. Moreover, we find no significant relationship of the different responses with litigation risks and agency costs. Our results suggest that Reg FD had unintended consequences and that information' in financial markets may be more complicated than current finance theory admits.

National Bureau of Economic Research
1050 Massachusetts Ave.
Cambridge, MA 02138

Twitter RSS

View Full Site: One timeAlways