Mandatory disclosure and operational risk: Evidence from hedge fund registration

Stephen Jeffrey Brown, William N Goetzmann, Bing Liang, Christopher Schwarz

Research output: Contribution to journalArticleResearchpeer-review

83 Citations (Scopus)

Abstract

Mandatory disclosure is a regulatory tool intended to allow market participants to assess operational risk. We examine the value of disclosure through the controversial SEC requirement, since overturned, which required major hedge funds to register as investment advisors and file Form ADV disclosures. Leverage and ownership structures suggest that lenders and equity investors were already aware of operational risk. However, operational risk does not mediate flow-performance relationships. Investors either lack this information or regard it as immaterial. These findings suggest that regulators should account for the endogenous production of information and the marginal benefit of disclosure to different investment clienteles.
Original languageEnglish
Pages (from-to)2785 - 2815
Number of pages31
JournalJournal of Finance
Volume63
Issue number6
Publication statusPublished - 2008
Externally publishedYes

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