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36 J. Legal Stud. 213 (2007)
Mandatory Disclosure and Stock Returns: Evidence from the over-the-Counter Market

handle is hein.journals/legstud36 and id is 219 raw text is: Mandatory Disclosure and Stock Returns: Evidence from the Over-the-Counter Market Allen Ferrelt ABSTRACT Mandatory disclosure requirements placed on publicly traded firms constitute the core of U.S. securities regulation. Despite their importance, few empirical studies have been done on the impact of mandatory disclosure requirements on the capital markets. Using a unique database created for this study, this paper examines the impact of the 1964 imposition of mandatory disclosure requirements on the over-the-counter (OTC) market in terms of volatility and stock returns. The effect of the 1964 regulatory change has never been examined prior to this paper, despite its being the only fundamental change in disclosure regulation since the original 1930s securities acts. This study finds that mandatory disclosure is associated with both a dramatic reduction in the volatility of OTC stock returns and with OTC stocks enjoying positive abnormal returns. 1. INTRODUCTION The organizing principle of U.S. securities regulation in the twentieth century has been the belief that mandatory disclosure of firm-specific ALLEN FERRELL is Greenfield Professor of Securities Law, Harvard Law School. I would like to thank the Harvard Law School John M. Olin Center for Law, Economics, and Business for its financial support. I would also like to thank Krishna Rao, Robert Schroeder, and Rose Zhao for their outstanding research assistance, and I appreciate helpful comments from participants in the American Law and Economics Association conference, Massa- chusetts Institute of Technology finance workshop, the Securities and Exchange Commission workshop, Stanford/Yale Junior Faculty Forum, the Stanford Law and Economics work- shop, the Babson Business School economics workshop, the Boalt Law and Economics workshop, the Kennedy School's New Directions in Regulation seminar, University of Michigan Law and Economics workshop, and the Harvard Law and Economics workshop. I am also grateful for the helpful comments of Lucian Bebchuk, Victor Chernozhukov, John C. Coffee, Cary Coglianese, Einer Elhauge, Andrew Guzman, Henry Hansmann, Howell Jackson, Louis Kaplow, Elizabeth Keating, Josh Lerner, and Paul Zarowin. Journal of Legal Studies, vol. 36 (June 2007)1 0 2007 by The University of Chicago. All rights reserved. 0047-2530/2007/3602-0009$10.00 213

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