Selective disclosure: the case of the Korean securities market

Korea adopted Regulation Fair Disclosure (FD) in November 2002. Regulation FD, designed with a goal of levelling the playing field among market participants, has created considerable debate among practitioners and academics. This thesis examines the effect of Regulation FD on the Korean securities market, using a large sample of 161,343 forecast-year observations and 2,311 firm-year observations from 2000 to 2007. We uncover four main sets of findings. First, we find that analysts’ forecast accuracy has increased after the adoption of Regulation FD. We attribute this finding to the improved quality of public information and reduced importance of private access to managers in the post-FD period. Second, we provide evidence of significant change in firms’ disclosure policy in the post-FD period. We report that private earning guidance and private information in analysts’ forecasts have decreased as a consequence of curtailing selective disclosure in the post-FD period. Our findings are consistent with the intentions of Regulation FD to increase management disclosure to the general public. Third, we find no evidence of an increase in herding behaviour in the post-FD period. Our results contradict Regulation FD’s opponents’ claims that elimination of private channels may lead to increasing herding behaviour due to the chilling effect. We find no evidence that Regulation FD makes firms withhold their disclosure. To the contrary, our evidence suggests that Regulation FD has led to an increase in the quality and quantity of public information. Finally, we provide strong evidence for a reduction in informed trading and information leakage prior to unscheduled earnings announcement and release of analysts’ recommendations. Overall, our results suggest that Regulation FD has been successful in eliminating selective disclosure and levelling the playing field for investors.