Legal requirements for disclosure of material facts in Brazil: Noisy announcements or relevant information?

Advisor: Walter Novaes

Disclosure requirements in stock markets facilitate the timely dissemination of corporate news. Accordingly, I find that in Brazil, cumulative abnormal returns upon the disclosure of positive and negative news are 1.01% and −1.88%, respectively, with p-values below 1%. More interestingly, abnormal returns do not differ when Fuzzy RDD regressions compare firms just inside the threshold for inclusion in the stock index with those nearly excluded. Given that index firms are more closely followed by investors, these results suggest that abnormal returns in Brazil are not primarily driven by firm visibility or monitoring; rather, the information content of the announcement itself is the main causal determinant. This result is somewhat surprising in a civil-law country such as Brazil, given its relatively weak minority shareholder protections.