Shareholder Monitoring and Discretionary Disclosure

Regulation Fair Disclosure (“Reg FD”) is commonly believed to prohibit managers from disclosing information about their firm to select shareholders. But managers are in fact allowed to do so in several circumstances. Specifically, Reg FD exempts communications to shareholders who will not trade on the information and to companies’ customers, suppliers, and strategic partners. In a new article, we exploit an understudied setting where large shareholders and firms enter into bilateral contracts that entitle the shareholders to receive specific information privately from management. We find that, after the execution of such contracts, firm performance improves and the amount of public … Read more