The 1964 Securities Acts Amendments extended the mandatory disclosure requirements
that had applied to listed firms since 1934 to large firms traded Over-the-Counter
(OTC). We find several pieces of evidence indicating that investors valued these
disclosure requirements, two of which are particularly striking. First, a firm-level
event study reveals that the OTC firms most affected by the 1964 Amendments had
abnormal excess returns of about 3.5 percent in the weeks immediately surrounding
the announcement that they had begun to comply with the new requirements.
Second, we estimate that the most affected OTC firms had abnormal excess returns
ranging between 11.5 and 22.1 percent in the period between when the legislation
was initially proposed and when it went into force. These returns are adjusted for
the standard four factors and are relative to NYSE/AMEX firms, matched on size and
book-to-market equity, that were unaffected by the legislation. While we cannot
determine how much of shareholders' gains were a transfer from insiders of these
same companies, our results suggest that mandatory disclosure causes managers to
focus more narrowly on maximizing shareholder value.