November 4, 2007
Equal Disclosure Can Mean Less Disclosure
A new study by Begley, Cheng, and Gao on the effect of the Sarbanes-Oxley Act of 2002 on the accuracy of analysts' projections notes that, in essence, analysts were less able to forecast earnings accuracy after the Act was passed than before the Act was passed. The inference is that once Congress and the SEC increased disclosure requirements and increased the penalties for inaccurate disclosure, companies actually disclose less. The companies limit what they say to the bare bones of the requirements and, in the process, disclose less information than they have disclosed voluntarily before. This a familiar result. We have watched a similar effect with Regulation FD.
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In analyzing the affects of the Sarbanes-Oxley Act of 2002, does this study sufficiently account for the affects of variations in enforcement pre and post Sarbox?
And assuming for the sake of argument that less disclosure is being made, haven't we benefited by ensuring that all investors are now playing on a more even field? That is less disclosure at the same time to everyone as opposed to the multi-tier disclosure model before Sarbox when certain analysts enjoyed privileged access to information.
Posted by: David O'Donnell | Nov 4, 2007 10:22:43 PM