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Trading Prior to the Disclosure of Material Information: Evidence from Regulation Fair Disclosure Form
 8‐Ks
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Regulation Fair Disclosure (Reg FD) prohibits managers from releasing material information in non-public forums. Prior research concludes that Reg FD was effective at curtailing selective disclosure. However, these results have been called into question due to confounding events, an inability to ensure the disclosure was intended to comply with Reg FD, and an inability to identify the timing of the disclosure. We address these limitations and offer new evidence on the effectiveness of Reg FD. First, we find significant increases in abnormal trading volume during the trading hour immediately prior to the public release of Reg FD disclosures. Specifically, we find that 20 percent of the volume reaction over the two hour window surrounding Reg FD disclosures occurs during the hour before the disclosure. Second, this pre-disclosure increase in trading volume is larger when the information is of greater consequence to the market. Finally, stock returns during the trading hour immediately prior to Reg FD filings predict returns during the trading hour immediately after the filings, but only for the disclosure of consequential, negative information. Additional analysis reveals that selective disclosure is larger for firms with greater growth opportunities and weaker information environments, and that corporate insiders and large traders account for about 50 percent of the trading in the hour leading up to Reg FD filings. Overall, our results suggest that, despite Reg FD's goal of providing information to all investors simultaneously, disclosure provided pursuant to the regulation appears to be selectively disclosed to subsets of investors beforehand.