We had a great discussion about Reg FD and foreign filers on Tuesday.  If you were not able to attend, I encourage you to view the archive.  When you do so, you will notice several text comments from me (Accounting Footman) that may at first seem very critical of the study.  I want to clarify that I find the topic of the paper extremely interesting – why would a company that does not have to comply with a rule voluntarily choose to comply?  I think most of us believe the company’s goal underlying this behavior is related to establishing a good reputation. 

From this, I expected that the companies adopting Reg FD would state this explicitly in some SEC filing or press release.  To my surprise, Ke et al. primarily identify the FD adopters using a survey, and they could not find an announcement of FD adoption for about 50% of the adopters.  Admittedly, the missing companies may have announced adoption of FD in ways that the researchers could not detect.  But if adoption is a way to help the company build a reputation, I would have expected a highly visible announcement of the adoption.

I do not believe the lack of announcements for a subset of the companies lessens the quality of the paper.  Instead, I think it opens up even more avenues to research.  If a company adopts FD but does not tell anyone, then can the goal really be enhanced reputation?  What other reasons exist for adopting FD?  Also, do the capital market benefits of adopting FD coincide with the announcement to adopt – is it important for the company to tell investors they are good guys?  Or can a company expect investors to infer they are good guys from observing the company’s actions (open conference calls following earnings releases, lots of 8-K disclosures, no favored analyst conferences over a period of time)?

Lots of intriguing stuff going on in this area.  And the implications for standard setting can be huge.  If market forces are sufficient to discipline management actions, then the need for standards and regulations to curb aberrant behavior is reduced.