The objective of recent disclosure regulation (e.g., Regulation Fair Disclosure [FD]) is to reduce selective disclosure, the practice of releasing financial information to selected users before publicly disclosing the information. Prior to FD, providers used narrow distribution reporting activities, such as phone calls and one‐on‐one meetings with analysts, reviews of analysts' earnings estimates, and analysts' contracts with suppliers and firm employees, to communicate private financial information to selected users at the expense of uninformed users. Public interest theorists view regulation as a means to protect the public. We predict that if FD is effective, providers will move away from narrow reporting activities and reduce the probability that selected users can achieve a competitive advantage over the general investing public. In addition, assuming that reducing selective disclosure increases the number of market participants receiving information, we argue that the importance of assurance services will increase since FD (1) reduces users' ability to evaluate the credibility of provider information based on personal relationships with providers, and (2) increases the pressure on provider investor relations personnel to monitor the amount and credibility of information disclosed to decrease the likelihood that market participants view the information released as unreliable.
Due to the lack of available empirical data related to narrow reporting activities and the importance of assurance services, we employ a field‐based questionnaire of providers and users to address these issues. Results indicate that (1) providers and users perceive that narrow distribution reporting activities still exist, and (2) reducing users' personal access to providers may increase the importance of assurance services. The study increases our understanding of how regulation to reduce selective disclosure may protect the public by examining its impact on corporate disclosure activities and policies.