Regulatory Certification, Risk Factor Disclosure, and Investor Behavior
54 Pages Posted: 15 Jan 2019
Date Written: January 6, 2019
Does regulatory approval of prospectuses act as a “certification” of securities offerings? Prospectus approval is uninformative about the quality or motives for the underlying offering and should be largely ignored by rational investors, but our survey experiment shows salient references to regulatory oversight in investment advertisements lead to significant increases in willingness to invest and decreases in perceived risks. Conversely, salient disclosure of risk factor information increases risk perceptions and reduces the intention to search for additional information. Various robustness tests confirm that regulatory oversight of securities offerings can be perceived as an endorsement. Our results provide insight regarding the design of the disclosure and the effective regulation of financial markets.
Keywords: salience, investment behavior, advertising, statutory disclosure
JEL Classification: G11, G18, D91, M37
Suggested Citation: Suggested Citation