There are many theoretical explanations to justify the imposition of mandatory disclosure. One of these justifications is that mandatory disclosure encourages market participation by individual investors by giving them access to information that puts them on an equal playing field with institutional investors. Although this justification has been frequently cited, recent work has questioned its validity. In particular, recent studies have argued that individual investors do not use all of the information that the law requires firms to disclose because the overwhelming amount of information is too burdensome for them to process.

Using a recent change in the law that allows firms to disclose less information upon registering their securities, we examine whether this reduction in mandatory disclosure leads to reduced trading by individual investors. Our results show that, immediately following the firm’s initial public offering, individual investors are less likely to trade in the firms that provide less disclosure—but that this difference disappears after two weeks of trading. Our findings have important implications for policymakers. First, our results indicate that individual investors are able to process the disclosures in question. Second, although we do not address the desirability of individual investors in securities markets, we provide empirical evidence that regulators wishing to increase (or decrease) participation by individuals may be able to use the design of securities disclosures as a tool to accomplish this result.