Foreign Competition for Shares and the Pricing of Information Asymmetry: Evidence from Equity Market Liberalization

67 Pages Posted: 23 Feb 2014 Last revised: 24 Aug 2018

See all articles by Karthik Balakrishnan

Karthik Balakrishnan

London Business School

Rahul Vashishtha

Duke University

Robert E. Verrecchia

University of Pennsylvania - Accounting Department

Date Written: August 2018

Abstract

Using the equity market liberalization of 23 emerging market countries between 1996 and 2006, we examine how the degree of competition for a firm’s shares affects the price of information asymmetry. We find evidence of a significant decline in the pricing of information asymmetry as countries remove regulatory restrictions on foreign ownership. Our study provides novel evidence on the link between the degree of competitiveness of equity markets and the price of information asymmetry. The work also furthers our understanding of the economic consequences of foreign stock ownership.

Keywords: Pricing of Information Asymmetry; Cost of Capital; Competition; Information Quality; Foreign Investors

JEL Classification: G12, G14

Suggested Citation

Balakrishnan, Karthik and Vashishtha, Rahul and Verrecchia, Robert E., Foreign Competition for Shares and the Pricing of Information Asymmetry: Evidence from Equity Market Liberalization (August 2018). Journal of Accounting & Economics (JAE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2399604 or http://dx.doi.org/10.2139/ssrn.2399604

Karthik Balakrishnan (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London, NW1 4SA
United Kingdom

Rahul Vashishtha

Duke University ( email )

Durham, NC 27708-0204
United States
919-660-7755 (Phone)
91-660-7971 (Fax)

Robert E. Verrecchia

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-6976 (Phone)
215-573-2054 (Fax)

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