Abstract:
Regulation Fair Disclosure (RFD) requires that any release of material information be made to the general
public rather than to select individuals. The regulation represents an attempt by the Securities and Exchange
Commission to restore a level of fairness to the market. Foreign issuers, however, are currently exempt from
this rule. We examine liquidity changes around earnings announcements of American Depository Receipts
(ADRs) before and after the introduction of RFD. We find that market makers have adjusted spreads to
reflect the new, less information asymmetric environment for U.S. issues, but the same changes are not
observed for our ADR sample. Similarly, the decline in activity measures of U.S. issues is not observed in
our ADR sample. Our results suggest that investors and market makers are not yet convinced that foreign
issuers are complying with RFD.
