Is mandatory disclosure necessary?

I've been arguing, e.g., here, that SOX, in addition to its manifest costs, has dubious benefits because of the market's ability to promote the necessary disclosure. That's an easy point to make now, because SOX comes on top of 70 years of disclosure laws. But apparently the argument works even for the original securities laws, according to Mahoney & Mei, Mandatory vs. Contractual Disclosure in Securities Markets: Evidence from the 1930s. Here's the abstract:

This paper studies mandatory disclosure documents filed during the period 1933-35 in response to the Securities Act of 1933 and the Securities Exchange Act of 1934. Our sample companies are all listed on the New York Stock Exchange (NYSE) and therefore subject to the NYSE’s disclosure requirements at the time of the regulatory filings. We ask whether the additional disclosures contained in the filed documents constitute information. Using newly-available daily price, volume, and bid and ask quotation data, we test whether the filings are associated with changes in bid-ask spreads, return autocovariance, turnover, volatility, or no-trade days. We find almost no evidence that the new disclosures required by the securities laws - principally having to do with management compensation and large shareholdings - reduced informational asymmetry. We also find no evidence that earnings reports were more informative after enactment of the securities laws.

Comments

[Marc Hodak]

Interesting. Nothing else in the New Deal did any good, why should the disclosure mandates have been any different?

Most of what we consider good disclosure today began with the B&O's simple desire to reduce their cost of capital in the 1840s. After that, competition between the eastern RRs, then for exchange listings pretty much did the rest. If a company didn't want the attention, they didn't list. Mandates could not be expected to change that. No surprise that they added nothing to overall info.