Disclosure Rule Not Hurting Stock Market, Study Says

A federal rule barring companies from selectively disclosing information to favored Wall Street analysts has not hurt the stock market as critics have claimed, according to a study released Monday.

The study, which was co-written by an accounting professor at USC’s business school, challenges Wall Street’s bitter opposition to the rule, which was designed to help individual investors.

The Securities and Exchange Commission enacted the rule, known as Regulation Fair Disclosure, or Reg FD, last October to prevent companies from leaking sensitive information to select investment pros.

Reg FD forces companies to reveal important information to the general public at the same time it’s released to stock analysts and large investors.

Wall Street has blasted the rule, saying it has resulted in less information to investors. Critics say companies have withheld information for fear of breaking the rule, thus making stocks more volatile.

The study, however, found the volatility of stocks did not increase when companies reported earnings.

The study concluded that analyst earnings estimates were no less accurate after Reg FD as before it. The study also found a marked increase in the amount of public disclosures that companies make about their earnings.

“We find no evidence of any of these dire predictions about Reg FD,” said K.R. Subramanyam of USC, who wrote the study with Frank Heflin, a Purdue University accounting professor, and Yuan Zhang, a USC graduate student.

The study of 1,595 companies compared the fourth quarter of last year--after Reg FD was in effect--with the third quarter of 2000 and the fourth quarter of 1999.