Unintended consequences of regulating disclosures: The case of Regulation Fair Disclosure

The mandate that firm disclosures take a public form has recently swept through US financial markets in the form of Regulation Fair Disclosure (FD). Though the regulation was designed with a goal of leveling the playing field for investors and security analysts, this paper demonstrates it may have some unintended consequences. In particular, by forcing disclosures to be widely disseminated, Regulation FD may heighten herding among analysts and leave investors worse off. As a result of this concern, the regulation may actually inhibit the very disclosures it was intended to widen.