Firms’ Disclosure Policies and Capital Investment: Evidence From Regulation Fair Disclosure

Abstract

This study examines the association between disclosure policy and investment due to a regulatory change—Regulation Fair Disclosure (Reg FD)—that pinpoints when firms change their disclosure policy. Reg FD prevents managers from releasing material information to a selected group only. In the post–Reg FD period (post-FD), some firms have chosen to replace selective disclosure with nondisclosure. We find that these silent firms’ capital investments are more constrained post-FD, relative to firms that have chosen to replace selective disclosure with public disclosure. The association is stronger for ex ante financially constrained firms, firms that have greater growth opportunities, firms that have less analyst following, and firms that have more difficulty accessing the debt market. The results are robust to a variety of research design choices. Our finding that firms’ disclosure policy affects their investment is relevant to both market participants and regulators when evaluating disclosure regulations.