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  • 2018
  • Article
  • Yale Journal on Regulation Bulletin

What Can Managers Privately Disclose to Investors?

By: Eugene F. Soltes
  • Format:Electronic
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Abstract

Regulators have long been aware that differential access to information can undermine the efficiency and fairness of financial markets. In an effort to place investors on equal footing, the Securities and Exchange Commission in 2000 created Regulation Fair Disclosure (Reg FD), which prohibits public firms from disclosing material information to certain parties but not others. Nevertheless, managers have continued to meet privately with select investors, possibly sharing information in violation of Reg FD. A key weakness of Reg FD is that its definition of materiality remains unclear. Using a series of vignettes based on actual private investor meetings, I investigate how managers and regulators understand Reg FD. I find considerable uncertainty and disagreement among both managers and regulators as to what kind of information may be lawfully communicated. Many managers interpret Reg FD subjectively, often relying on individual industry norms to decide where to draw the line. Ultimately, the ambiguity of Reg FD leads to considerable variation in the information managers privately provide to investors, undermining the notion of a level playing field in financial markets.

Keywords

Disclosure Regulation; Information; Communication; Business and Shareholder Relations; Governing Rules, Regulations, and Reforms

Citation

Soltes, Eugene F. "What Can Managers Privately Disclose to Investors?" Yale Journal on Regulation Bulletin 36 (2018): 148–169.
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About The Author

Eugene F. Soltes

Accounting and Management
→More Publications

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More from the Author
  • Corporate Criminal Investigations and Prosecutions By: Leo R. Tsao, Daniel S. Kahn and Eugene F. Soltes
  • Should I Stay or Should I Go? Assessing Risk in Carlos Ghosn's International Escape By: Eugene F. Soltes, Grace Liu and Muneeb Ahmed
  • Is ‘Not Guilty’ the Same as ‘Innocent’? Evidence from SEC Financial Fraud Investigations By: Eugene F. Soltes and David H. Solomon
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