Stock Effect of Filing a Form 8-K

The SEC doesn't allow management to hide bad news from stockholders.

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The Securities & Exchange Commission's disclosure rules require publicly owned companies to report information and events that could have an impact on the company and its stock price. Companies file Form 8-K to provide shareholders with the all the information they need to make an educated decision about their ongoing investment in the company. The instructions for Form 8-K provide examples of events in nine different categories that should be disclosed to investors. Depending on how investors react to an 8-K filing, the company's stock might go up, go down or remain at about the same price as before the filing.

8-K Sections

The SEC disclosure rules contain nine sections. Each section contains a list of events that must be disclosed on an 8-K because they affect the company's stock price, financial status or ability to conduct business. The sections cover company operations, financial information, securities events, accounting and financial reporting, changes in management, asset-based securities, insider trading , corporate financial statements and other miscellaneous events.

Supporting Material

If there's supporting detail that investors need to review so they can fully understand the event disclosed in an 8-K, the company must provide that information as part of its filing. However, many events disclosed on Form 8-K are self-explanatory. For example, a company might disclose that the chief financial officer left the company and a new CFO was hired, that the company reached agreement to acquire another company, that the company discovered an error in its financial statements or that the company was entering into bankruptcy protection.

8-K Filing Requirements

When an event occurs that should be disclosed through an 8-K filing, the company must file the 8-K within four days of the event. Because many events can impact the price of the company's stock, companies often file 8-Ks either before the stock market opens or after trading closes to give investors time to reflect on the announcement before making buy or sell decisions about the company's stock.

Stock Effect of 8-K

Depending on what the 8-K discloses, the impact on the company's stock could be positive, negative or neutral. Investors' decisions to buy or sell the company's stock following an 8-K filing ultimately determine whether the stock rises, falls or remains at about the same price as before the disclosure. For example, if the company announces a merger, the stock of the company being acquired usually goes up and the stock of the acquirer usually goes down. If the investment community reacts favorably to a change in management, the stock might go up.

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About the Author

Steve McDonnell's experience running businesses and launching companies complements his technical expertise in information, technology and human resources. He earned a degree in computer science from Dartmouth College, served on the WorldatWork editorial board, blogged for the Spotfire Business Intelligence blog and has published books and book chapters for International Human Resource Information Management and Westlaw.

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