The SEC and Mandated Disclosure: At the Crossroads.

Abstract This article focuses on disclosure regulations of the U.S. Securities and Exchange Commission (SEC). Since the late 1970s, deregulation in the U.S. has resulted in a free market environment in such diverse fields as transportation, communications, energy and financial services. Yet lawmakers have tended to impose even greater regulation on the already highly regulated securities markets. For example, the Insiders Trading Sanctions Act of 1984 extended the enforcement powers of SEC regarding insider trading and imposed the severest penalties ever on those found guilty of such activity. Recent disclosures of insider trading have received extensive media coverage and have generated considerable political interest. Some of the most controversial research on the SEC has pertained to the economic effects of its mandated disclosure program. This research has generally focused on two principal issues: the effects of the 1933 Act on new stock issues and the stock market effects of periodic disclosure requirements under the 1934 Act. George Stigler was the first researcher to examine the effects of the 1933 Act on the returns of new stock issues. Much of the controversy over Stigler's research has centered on the significance of the lower market volatility in the post-SEC period. Stigler argued that this reduced volatility indicates little more than the elimination of very risky stocks, not necessarily fraudulent ones. Moreover, 1973 study of George Benston is the seminal research on the effects of the periodic disclosure requirements of the 1934 Act. Benston compared large publicly-traded companies that had disclosed sales information prior to the act with those that had not, and found no measurable effect of the 1934 Act on the securities prices of the corporations that presumably would have been affected by the 1934 Act.