The Effects of Mandatory Disclosure on Investment Efficiency

Recent disclosure regulations require firms to disclose more information. Evaluating disclosure regulations requires researchers to account for real decisions and the uncertainty of future earnings. Thus, firms have an incentive to obtain information to make more appropriate real decisions. In particular, information from analysts is a direct source of information for firms. However, when the information firms disclose affects the information analysts provide, disclosure regulations may change the information that firms obtain from analysts. This study examines the effects of disclosure regulations on the information firms disclose and on investment efficiency when firms have incentives to obtain information from analysts. The results indicate that disclosure regulations may result in less accurate information disclosure and lower investment efficiency