Differences in the Information Environment Prior to SEOs under Relaxed Disclosure Regulation

Sarah B. Clinton, Joshua T. White and Tracie Woidtke

Abstract:

We examine whether the Securities Offering Reform (SOR) is associated with differences in disclosure and a richer information environment during seasoned equity capital formation. SOR eases disclosure restrictions and reduces uncertainty regarding disclosures allowed prior to a seasoned equity offering (SEO). We find more frequent disclosure of management earnings forecasts and Form 8-K filings immediately preceding SEOs under SOR. Earnings forecasts are more accurate and 8-K filings contain more information just prior to SEOs under SOR. In addition, we find a greater magnitude of information and more positive net returns under SOR concentrated in SEOs immediately preceded by disclosure. Moreover, returns do not reverse after the issue date. Overall, these results suggest that SOR is associated with greater disclosure closer to the time when investors commit to invest and assess the SEO price; and greater disclosure closer to the SEO issue date is related to a richer information environment with capital formation benefits.