Financial Reporting and Information Asymmetry : An Empirical Analysis of the Sec's Information-Supplying Exemption for Foreign Companies

This paper examines empirically the effect of SEC registration and reporting requirements on information asymmetry. We compare the adverse-selection component of the bid-ask spread our measure of information asymmetry for three samples of companies listed on NASDAQ that are subject to different levels of disclosure requirements: registered U.S. companies registered non-Canadian foreign companies and unregistered non-Canadian foreign companies covered by the information-supplying exemption of Rule 12g3-2(b) of the Securities and Exchange Act of 1934. After controlling for other determinants of adverse-selection we find that adverse- selection is lower for the foreign companies than for the U.S. companies and that it is indistinguishable for the exempt and non-exempt foreign companies. We are unable to document that less stringent SEC registration and reporting requirements are associated with greater information asymmetry for foreign securities listed on NASDAQ