Regulation, Market-Maker Behavior, And Distribute Efficiency: A Study Of Mandated Replacement Cost Disclosures

Abstract

Regulation in accounting, among other things, attempts to achieve allocative and distribute efficiency in capital markets. The evaluation of regulatory consequences have most been restricted to a study of its impact on the characteristics of stock prices. Lev (1988) suggests alternate methods to evaluate regulatory consequences. Taking his lead, this study evaluates Replacement Cost (RC) disclosures from a distributive efficiency perspective through the use of a relatively new bid-ask methodology. Parametric tests indicate that for certain firms the market-maker does experience a decrease in the level of information asymmetry subsequent to RC disclosures.