Does Stricter Disclosure Regulation of Private Meetings Improve the Information Environment?
55 Pages Posted: 3 Nov 2020
Date Written: November 2, 2020
The Shenzhen Stock Exchange (SZSE) in China is unique worldwide in requiring disclosure of the existence and content of private meetings between firm managers and outside investors. We investigate whether the SZSE’s increased disclosure requirements in July 2012 led to tangible benefits for market participants. We use a difference-in-differences design (where possible) and a dataset that includes Shanghai Stock Exchange (SHSE) firms as a control group. Despite allegedly ‘improved’ disclosures, we find the SZSE’s information environment experienced increased stock price volatility and reduced information efficiency relative to pre-July 2012 and relative to SHSE firms. After July 2012, private meetings became quasi-public and disclosures became more positive and less informative. Mutual fund participation in private meetings increased – especially for funds with little or no ownership in the host firm. Increased participation by these less informed institutional investors is one explanation for observed higher stock volatility and lower information efficiency around these meetings.
Keywords: disclosure regulation, private meetings, site visits, mutual funds, stock volatility, information efficiency, information environment
JEL Classification: G14, G15, G18, G28, M48
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