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

Hans B. Christensen, Luzi Hail, Christian Leuz

NBER Working Paper No. 16737
Issued in January 2011, Revised in April 2016
NBER Program(s):Asset Pricing, Corporate Finance, Law and Economics, Political Economy

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.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w16737

Published: Hans B. Christensen & Luzi Hail & Christian Leuz, 2016. "Capital-Market Effects of Securities Regulation: Prior Conditions, Implementation, and Enforcement," Review of Financial Studies, vol 29(11), pages 2885-2924. citation courtesy of

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