When companies face adverse proposed rules, they may want to convince regulators that the proposed rules are unworkable and should be changed while, at the same time, reassuring investors that the rules will be manageable. These conflicting incentives may lead to inconsistent messages in regulatory comments and securities disclosures, fueling a perception that corporate submissions to regulators are "cheap talk." Despite this perception, there has been no empirical study comparing statements to these two audiences. This project performs such a study, taking the example of comments submitted on the Environmental Protection Agency's Renewable Fuel Standard. This standard provides an ideal case study because controversial annual rulemakings have created a rich dataset of company comments that can be compared to contemporaneous security disclosures from the same companies. The empirical study demonstrates that oil companies do send inconsistent messages to their two audiences — warning regulators and reassuring investors.
The article suggests that regulators use this methodology to assess the sincerity of industry warnings about the cost of regulation. Private and public enforcers of security disclosure laws should also use this method to identify companies that are hiding regulatory risks. Finally, now that a company's comments can be compared with its securities disclosures, corporate counsel should align company statements to avoid securities litigation and enhance the company's credibility in each forum.