George Mason UniversitySchool of Business

Research Suggests SEC Should Expand Interactive Disclosure Requirements

In this age of technology, information sharing is becoming increasingly important as individuals demand faster and more accurate information at their fingertips. This holds true for sharing accounting data that are often buried in SEC reports.

mshen3A new study by Mason’s assistant professor of accounting, Min Shen, examines how the dissemination of this information after the release of SEC 10-K/10-Q reports, has an impact on capital markets.

Together with colleagues, Edward Xuejun Li from University of Rochester and K. Ramesh from Rice University, Shen examined the role of Dow Jones newswires in identifying and conveying market-moving information in periodic SEC reports to capital market participants.

Corporate financial reports are often released at the same time, creating information overload. Investors then rely on delegated information intermediaries, such as Dow Jones Newswire®, to identify important information that may be hidden deep within SEC reports. This information impacts investment strategies.

Shen said, “We find that newswire services are more likely to send alerts about firms that have one of the following characteristics: skipping their preliminary earnings announcements; with credit ratings; included in major market indices; having litigation exposure or losses. In addition, firms raising equity capital, approaching delisting, experiencing large price reactions at preliminary earnings announcements, reporting extraordinary or special items, or receiving a nonstandard audit opinion are more likely to prompt an alert by Dow Jones.”

“Research finds instantaneous price and volume reactions to Dow Jones alerts, while no significant reaction can be identified at the SEC filings that precede the alerts.”

Shen concluded, “Our study suggests that the SEC should consider expanding both the breadth and depth of the interactive disclosure requirements. To the extent that mandatory disclosures become more technologically friendly, capital market information intermediaries are bound to leverage technology by designing faster and better targeted information search and dissemination strategies to further enhance the efficiency of U.S. capital markets.”

Min Shen joined the accounting faculty at George Mason University in 2005 after receiving her PhD in accounting from Michigan State University. Her expertise centers on information dissemination in capital markets, voluntary disclosure, and corporate governance. Her papers have been published in Contemporary Accounting Research, Review of Accounting Studies, and The Accounting Review. Shen received her baccalaureate education at the Shanghai University of Finance and Economics. Her teaching focuses are in financial accounting principles and financial reporting