Regulating Substance Through Form: Lessons from the SEC's Plain English Initiative

Mandatory disclosure is an important piece of government regulation in many spheres, including securities offerings. Regulators recognize that the form of disclosure matters significantly for how well the substance is conveyed. Thus, regulators like the Securities Exchange Commission (“SEC”) that focus on disclosure spend time and energy thinking about form as well as substance. As I explain and support empirically in this Article, at least some of these “stylistic regulations” — regulations that govern the form of disclosure — can provide useful tools for improving how well substance is communicated, but at the same time, long-term compliance with these rules can be difficult to ensure. Using natural language processing methods, I assess compliance with the SEC’s “plain English” regulations for new issuances, and investigate how well these regulations have worked over time. I do so by creating a measure of plain English based on the SEC’s rules. This measure of plain English goes beyond prior research, providing a more robust analysis of compliance with these rules and their potential effects Using a dataset of 2,255 initial public offering (“IPO”) prospectuses and related documents, I find that the SEC’s regulations increased the degree to which disclosure was written in “plain English,” although the impact of the regulations has faded over time.