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Trading Prior to the Disclosure of Material Information: Evidence from Regulation Fair Disclosure Form 8‐Ks

Author

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  • John L. Campbell
  • Brady J. Twedt
  • Benjamin C. Whipple

Abstract

Regulation Fair Disclosure (Reg FD) Form 8‐K filings provide a venue where managers release information to the market as a whole that they designate as being material. Using this setting, we study trading patterns immediately prior to the public disclosure of material information. We offer three main results. First, using both intraday and daily trading data, we find abnormal trading volume of 21 percent (13 percent) in the hour (day) prior to the public disclosure, respectively. Second, we find that this pre‐disclosure abnormal trading volume is concentrated in firms that are smaller, have more growth opportunities, issue fewer voluntary disclosures, and have weaker external monitoring. Finally, we find that this pre‐disclosure volume is concentrated in subsamples in which the information relates to a firm's material contracts, a firm holds investor/analyst conferences, and there is insider trading activity in a firm's shares. Our results do not concentrate in a small number of firms or industries, and do not appear to be explained by the form through which managers first release the material information (e.g., Form 8‐K, press release, website posting, or social media). Our results are also robust to controlling for the firm's other filings and peer filings that occur around the disclosure. Overall, the trading patterns we document may show that, inconsistent with the spirit of Reg FD, a subset of investors trade on information managers deem material prior to its broad, public release. Négociations précédant la communication d'information importante : données tirées des formulaires 8 K visant le réglement sur l'image fidéle La production de formulaires 8‑K visant le règlement sur l'image fidèle (règlement FD — Fair Disclosure) permet aux gestionnaires de communiquer à l'ensemble du marché l'information qu'ils qualifient d’importante. Dans ce cadre, les auteurs étudient les profils de négociation immédiatement avant la publication d'information importante. Ils obtiennent trois résultats principaux. Premièrement, en utilisant des données intrajournalières et quotidiennes, ils observent un volume de négociation anormal de 21 pour cent (13 pour cent) dans l'heure (le jour) précédant la publication, respectivement. Deuxièmement, ils constatent que ce volume de négociation anormal précédant la publication se concentre dans les sociétés de taille plus modeste, qui ont davantage de possibilités de croissance, qui communiquent moins d'information facultative et qui font l'objet d'une surveillance externe moins rigoureuse. Troisièmement, les auteurs constatent que ce volume de négociation précédant la publication se concentre dans les sous‐échantillons de sociétés publiant de l'information qui touche leurs contrats importants, tenant des conférences investisseurs‐analystes, et dont les actions font l'objet d'opérations d'initiés. Les résultats de l’étude ne sont pas regroupés dans un petit nombre de sociétés ou de secteurs d'activité et ne semblent pas s'expliquer par la forme sous laquelle les gestionnaires ont initialement communiqué l'information importante (p. ex., le formulaire 8‑K, le communiqué de presse, l'affichage sur le site Web ou les médias sociaux). Ces résultats résistent également au contrôle des autres déclarations de la société et des déclarations des sociétés analogues, à proximité de la date de publication. Dans l'ensemble, les profils de négociation que les auteurs documentent pourraient indiquer que, contrairement à l'esprit du règlement FD, un sous‐ensemble d'investisseurs négocient à partir de l'information que les gestionnaires estiment importante avant la diffusion dans le grand public.

Suggested Citation

  • John L. Campbell & Brady J. Twedt & Benjamin C. Whipple, 2021. "Trading Prior to the Disclosure of Material Information: Evidence from Regulation Fair Disclosure Form 8‐Ks," Contemporary Accounting Research, John Wiley & Sons, vol. 38(1), pages 412-442, March.
    • Handle: RePEc:wly:coacre:v:38:y:2021:i:1:p:412-442
    DOI: 10.1111/1911-3846.12610
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    References listed on IDEAS

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    2. Jin, Shunyao & Kimbrough, Michael D. & Wang, Isabel Yanyan, 2024. "Privileged information access, analyst consensus building, and stock return volatility: Evidence from the JOBS Act," Advances in accounting, Elsevier, vol. 64(C).
    3. Aziz Simsir, Serif & Simsek, Koray D., 2022. "The market impact of private information before corporate Announcements: Evidence from Turkey," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 80(C).

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