Regulation Takes a Back Seat to Business Concerns: Evidence from Stock Exchange Demutualization
60 Pages Posted: 23 Feb 2020 Last revised: 28 Nov 2022
Date Written: November 22, 2022
Abstract
Increasing globalization and rapid technological development in recent decades have caused many stock exchanges to change their ownership structure from mutually owned (broker/dealer-owned) to demutualized (for-profit, shareholder-owned). This study investigates whether increased for-profit focus weakens exchanges’ monitoring incentives. Using multiple metrics for the quality of listed firms’ mandatory financial disclosure to capture exchanges’ monitoring efforts, we find that exchanges’ monitoring declines post-demutualization. Additional tests confirm that our findings are attributable to changes in oversight by stock exchanges. However, these findings only hold in weak regulatory regimes. This emphasizes the significance of strong, independent country-level regulatory organizations in monitoring stock exchanges.
Keywords: stock exchanges; exchange oversight; exchange regulation; demutualization; reporting quality
Suggested Citation: Suggested Citation