Anatomy of a Regulatory Race to the Top: Changes in Delisting Rules at Korea’s Two Stock Exchanges, 1999-2002

The Journal of Corporate Finance, 2010

37 Pages Posted: 3 Jul 2010

See all articles by Kathryn L. Dewenter

Kathryn L. Dewenter

University of Washington - Michael G. Foster School of Business

Chang Soo Kim

Yonsei University - Department of Medical Engineering

Walter Novaes

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics

Date Written: June 2010

Abstract

One dimension of competition among stock exchanges is the quality of products they have to offer. In order to attract listings and trading volume, exchanges can affect the quality of their listed firms by altering their standards for firm disclosure and governance. We identify a competition with respect to delisting standards between Korea's two stock exchanges and show that it complies with the three components of a regulatory race to the top: external trigger, mobility among diverse regimes and meaningful changes that converge to similar rules. The race between the two Korean exchanges ended with stricter rules and better protected minority shareholders. The race also ended, however, with neither exchange gaining market share with respect to trading volume or new listings. Korea's experience, therefore, suggests a reason why these races are rare. In the absence of an external trigger, exchanges will be reluctant to enter a race if they think it will result in rule convergence and no winner.

Keywords: Race to the top, competition among exchanges, governance regulations, Korea

JEL Classification: G38, G34

Suggested Citation

Dewenter, Kathryn L. and Kim, Chang Soo and Novaes, Walter, Anatomy of a Regulatory Race to the Top: Changes in Delisting Rules at Korea’s Two Stock Exchanges, 1999-2002 (June 2010). The Journal of Corporate Finance, 2010, Available at SSRN: https://ssrn.com/abstract=1633548

Kathryn L. Dewenter (Contact Author)

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Dept. of Finance & Business Economics
Seattle, WA 98195-3200
United States
206-685-7893 (Phone)
206-685-9392 (Fax)

Chang Soo Kim

Yonsei University - Department of Medical Engineering ( email )

Korea, Republic of (South Korea)
033-760-2331 (Phone)
033-760-2918 (Fax)

HOME PAGE: http://www.yonseibiz.net/w_page/fix_ct/bbs/board.php?bo_table=fnr_db1

Walter Novaes

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics ( email )

Rua Marques de Sao Vicente, 225/206F
Rio de Janeiro, RJ 22453
Brazil

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