Leveling the Playing Field: Disclosure Regulation and Local Informational Advantage∗

Abstract – This study examines how changes in firms ’ information environment affect local agents. We show that local bias and informational advantage of institutional investors and equity analysts located around corporate headquarters decline sharply following the adoption of Regu-lation Fair Disclosure and Sarbanes-Oxley Act. The decline in local bias is more salient among firms whose information environment is more opaque before the new rules. At the aggregate market level, the degree of informed trading attributed to local investors also declines. Overall, the evidence is consistent with disclosure regulation affecting the informational advantage tha