No. 18: Firm Value Effects of Targeted Disclosure Regulation: The Role of Reputational Costs

Abstract

We study the reputational costs of ‘targeted disclosure regulation’ – disclosure requirements that pursue policy objectives outside of securities regulators’ traditional missions. This emerging type of disclosure regulation empowers civil society to influence firms’ actions through public pressure. We study the SEC’s extraction payments disclosure rule, which requires oil and gas firms to publish details about their payments to host governments. Consistent with reputational costs for affected firms, our event-study results document that the rule’s negative effect on firm value is stronger where greater reputational risk makes firms more vulnerable to public pressure. Our qualitative field evidence suggests that reputational costs arise because the required disclosures facilitate pressure groups’ campaigning. These findings are robust to several alternative explanations and research design choices.

Participating Institutions

TRR 266‘s main locations are Paderborn University (Coordinating University), HU Berlin, and University of Mannheim. All three locations have been centers for accounting and tax research for many years. They are joined by researchers from LMU Munich, Frankfurt School of Finance and Management, WHU – Otto Beisheim School of Management, European School of Management and Technology in Berlin and Goethe University Frankfurt who share the same research agenda.