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http://ssrn.com/abstract=1808123
 
 

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Leveling the Playing Field: Financial Regulation and Disappearing Local Bias of Institutional Investors


Gennaro Bernile


Singapore Management University - Lee Kong Chian School of Business

Alok Kumar


University of Miami - School of Business Administration

Johan Sulaeman


Southern Methodist University (SMU) - Edwin L. Cox School of Business

August 5, 2011


Abstract:     
We examine whether exogenous shocks to firms' information environments generated by Regulation Fair Disclosure (Reg FD) and Sarbanes-Oxley Act (SOX) influenced the degree of local bias of institutional investors. Our main conjecture is that as financial regulation makes the information environment more competitive, the local informational advantage of institutional investors declines and their preferences for local stocks weaken. Consistent with this conjecture, we find that following regulatory changes, the local bias of institutional investors declines by a half and ownership becomes more diffused geographically. These shifts in ownership patterns are more salient among firms that had more opaque information environments prior to the regulation changes. Further, the performance of the local component of institutional portfolios worsens considerably and, at the aggregate market-level, the degree of informed trading attributed to local investors declines. Taken together, these findings indicate that Reg FD and SOX "leveled the playing field" and eliminated the local informational advantage of institutional investors.

Number of Pages in PDF File: 54

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Date posted: April 13, 2011 ; Last revised: November 12, 2013

Suggested Citation

Bernile, Gennaro and Kumar, Alok and Sulaeman, Johan, Leveling the Playing Field: Financial Regulation and Disappearing Local Bias of Institutional Investors (August 5, 2011). Available at SSRN: http://ssrn.com/abstract=1808123 or http://dx.doi.org/10.2139/ssrn.1808123

Contact Information

Gennaro Bernile
Singapore Management University - Lee Kong Chian School of Business ( email )
50 Stamford Road
Level 4
Singapore, 178899
Singapore
+65-68085478 (Phone)

Alok Kumar (Contact Author)
University of Miami - School of Business Administration ( email )
514 Jenkins Building
Department of Finance
Coral Gables, FL 33124-6552
United States
305-284-1882 (Phone)
HOME PAGE: http://moya.bus.miami.edu/~akumar
Johan Sulaeman
Southern Methodist University (SMU) - Edwin L. Cox School of Business ( email )
Dallas, TX 75225
United States
214-768-8284 (Phone)
HOME PAGE: http://jsulaeman.cox.smu.edu
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