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This study examines the challenge of implicit communications - qualitative statements, tone, and non-verbal cues - to the effectiveness of enforcing corporate disclosure regulations.
We use Regulation FD setting, given that SEC adopted the regulation recognizing that managers can convey non-public information privately not just through explicit quantitative disclosures but also through implicit communications. In a high-profile enforcement action, however, the court focused on a literal examination of the manager’s language rather than his positive spin to conclude that SEC had been “too demanding” in examining the manager’s statements and that its enforcement policy was “overly aggressive.” We provide empirical evidence suggesting that selective disclosure from managers to financial analysts increased significantly after the court’s ruling. We also provide reasons to believe that this consisted, in part, of an increase in implicit communications. Our results highlight the challenges associated with enforcing corporate disclosure regulations in the context of implicit communications.
We are witnessing a quiet but quick transformation of corporate governance. The rise of digital technologies and social media are forcing companies to reconsider how they organize themselves and structure firm governance.
What is...Read more
Mechanisms of market inefficiency are some of the most important and least understood institutions in financial markets today. A growing body of empirical work reveals a strong and persistent demand for “safe assets,” financial instruments that...Read more
In order to identify the relevant sources of firms' financing constraints, we ask what financial frictions matter for corporate policies. To that end, we build, solve, and estimate a range of dynamic models of corporate investment and financing,...Read more
We analyze rights offerings and public offerings in a setting where better informed current shareholders strategically choose to subscribe. When all current shareholders have wealth to participate, rights offerings achieve the full information...Read more