The cost-benefit tradeoff of securities market regulation: European firms’ delisting around major regulatory shocks
53 Pages Posted: 24 Jan 2017 Last revised: 2 Sep 2022
Date Written: May 31, 2022
Abstract
Between 1999 and 2005, the European Union approved several measures as part of the Financial Services Action Plan (FSAP) to reshape its financial markets. A core element of the FSAP was the adoption of the International Financial Reporting Standards (IFRS) to improve the reporting and disclosure quality of public firms. In this paper, we examine the firm-level effect of these major regulatory shocks. In pre- and post-2005 analyses, we compare the probabilities of companies voluntarily or involuntarily delisting in seven European economies with strong commitments to implementing regulations and in seven economies that are lenient in applying regulations. Our findings indicate an increased probability of delisting after 2005 compared to before 2005, mostly due to involuntary delistings in economies strictly implementing regulations. Furthermore, we document an incremental association between delisting and changes to IFRS made after 2005. Our results highlight the firm-level consequences of major securities market regulation and changes in reporting standards across jurisdictions with varying institutional environments. Takeaways are robust to multiple sample and research design variations.
Keywords: securities market regulation; firm-level net effect; implementation commitment; effects of IFRS; FSAP; delisting
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