Disclosure Speed: Evidence from Nonpublic SEC Investigations

We examine cross-sectional variation in disclosure speed by using data that allow us to measure when managers learn of SEC investigations and the time lag until subsequent disclosures. We document that external monitoring and litigation risk are associated with 99 percent and 39 percent faster disclosure, and managerial entrenchment with 28 percent slower disclosure. When revelations by external parties preempt managers' disclosures, we observe a significant increase in bid-ask spreads that persists for at least three years following the close of the investigation and a higher likelihood of turnover for less entrenched CEOs. We also document that firms whose managers disclose investigations are subject to fewer subsequent securities class action lawsuits. Our results are consistent with managers balancing the costs of fast disclosure, including immediate stock price declines and potential reputational costs, with the risks of having external parties leak news of SEC investigations.