Capital-Market Effects of Securities Regulation: Prior Conditions, Implementation, and Enforcement

Review of Financial Studies, Vol. 29, No. 11, pp. 2885-2924, 2016

79 Pages Posted: 15 Oct 2016

See all articles by Hans Bonde Christensen

Hans Bonde Christensen

University of Chicago - Booth School of Business

Luzi Hail

University of Pennsylvania - The Wharton School; European Corporate Governance Institute (ECGI)

Christian Leuz

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Leibniz Institute SAFE; CESifo Research Network; Center for Financial Studies (CFS)

Multiple version iconThere are 3 versions of this paper

Date Written: October 13, 2016

Abstract

We examine the capital-market effects of changes in securities regulation in the European Union (EU) aimed at reducing market abuse and increasing transparency. To estimate causal effects for the population of EU firms, we exploit that for plausibly exogenous reasons, like national legislative procedures, EU countries adopted these directives at different times. We find significant increases in market liquidity, but the effects are stronger in countries with stricter implementation and traditionally more stringent securities regulation. The findings suggest that countries with initially weaker regulation do not catch up with stronger countries, and that countries diverge more upon harmonizing regulation.

Keywords: Capital market regulation, Enforcement, Disclosure, Law and finance, European Union, Liquidity

JEL Classification: F30, G15, G18, G30, K22, M41

Suggested Citation

Christensen, Hans Bonde and Hail, Luzi and Leuz, Christian, Capital-Market Effects of Securities Regulation: Prior Conditions, Implementation, and Enforcement (October 13, 2016). Review of Financial Studies, Vol. 29, No. 11, pp. 2885-2924, 2016, Available at SSRN: https://ssrn.com/abstract=2851867

Hans Bonde Christensen

University of Chicago - Booth School of Business ( email )

5807 South Woodlawn Avenue
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Luzi Hail (Contact Author)

University of Pennsylvania - The Wharton School ( email )

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Christian Leuz

University of Chicago - Booth School of Business ( email )

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HOME PAGE: http://faculty.chicagobooth.edu/christian.leuz/

National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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Leibniz Institute SAFE ( email )

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CESifo Research Network

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