Mandatory Disclosure and Operational Risk: Evidence from Hedge Fund Registration

55 Pages Posted: 13 Nov 2008

See all articles by Stephen J. Brown

Stephen J. Brown

New York University - Stern School of Business

William N. Goetzmann

Yale School of Management - International Center for Finance; National Bureau of Economic Research (NBER)

Bing Liang

University of Massachusetts Amherst - Department of Finance

Christopher Schwarz

University of Massachusetts Amherst

Date Written: 2007

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 SECrequirement, 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. Investorseither lack this information or regard it as immaterial. These findings suggest thatregulators should account for the endogenous production of information and the marginalbenefit of disclosure to different investment clienteles.

Keywords: Hedge funds, operational risk, SEC filing, Form ADV

Suggested Citation

Brown, Stephen J. and Goetzmann, William N. and Liang, Bing and Schwarz, Christopher, Mandatory Disclosure and Operational Risk: Evidence from Hedge Fund Registration (2007). NYU Working Paper No. FIN-07-031, Available at SSRN: https://ssrn.com/abstract=1300778

Stephen J. Brown

New York University - Stern School of Business ( email )

Stern School of Business
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New York, NY 10012-1126
United States
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William N. Goetzmann

Yale School of Management - International Center for Finance ( email )

165 Whitney Ave.
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-5950 (Phone)
203-436-9252 (Fax)

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National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Bing Liang

University of Massachusetts Amherst - Department of Finance ( email )

Amherst, MA 01003
United States

Christopher Schwarz

University of Massachusetts Amherst

Department of Operations and Information Managemen
Amherst, MA 01003
United States

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