Regulatory Cooperation and Foreign Portfolio Investment

52 Pages Posted: 8 Aug 2018 Last revised: 6 Aug 2019

See all articles by Mark H. Lang

Mark H. Lang

University of North Carolina at Chapel Hill

Mark G. Maffett

University of Chicago - Booth School of Business

James D. Omartian

University of Michigan - Ross School of Business

Roger Silvers

University of Utah

Date Written: July 13, 2018

Abstract

We investigate the effect of cross-border regulatory cooperation on global mutual fund portfolio allocations, focusing on the Multilateral Memorandum of Understanding (MMoU), a non-binding information sharing arrangement between global securities regulators. Connections between the US Securities and Exchange Commission (SEC) and other foreign regulators increase the SEC’s ability to pursue US cross-listed firms. We find that foreign investment in US-cross- listed firms domiciled in the signatory country increases significantly relative to non-cross-listed firms from that country. We find the strongest effects of the MMoU for non-US investors trading on non-US exchanges, which suggests that there are significant spillover effects associated with regulatory cooperation. This increase in foreign investment is particularly pronounced for investors from geographically, linguistically, and culturally distant countries where information asymmetry is high, and also for dedicated investors who are more reliant on public information and oversight. Consistent with the increased US regulatory oversight driving the results, the increase in foreign investment is concentrated among US-cross-listed firms that are SEC registrants, firms from countries that had weak prior regulatory links to the US, and firms from investor countries that are closely aligned with the US.

Keywords: Securities Regulation, Foreign Portfolio Investment, Regulatory Bonding

JEL Classification: G15, G18, M48, F53

Suggested Citation

Lang, Mark H. and Maffett, Mark G. and Omartian, James D. and Silvers, Roger, Regulatory Cooperation and Foreign Portfolio Investment (July 13, 2018). Ross School of Business Paper No. 1385; Kenan Institute of Private Enterprise Research Paper No. 18-38. Available at SSRN: https://ssrn.com/abstract=3217447 or http://dx.doi.org/10.2139/ssrn.3217447

Mark H. Lang (Contact Author)

University of North Carolina at Chapel Hill ( email )

Kenan-Flagler Business School
McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-1644 (Phone)
919-962-4727 (Fax)

Mark G. Maffett

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

James D. Omartian

University of Michigan - Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI 48109-1234
United States

Roger Silvers

University of Utah ( email )

1655 E Campus Dr
SLC, UT 01003
United States

HOME PAGE: http://www.rogersilvers.com/

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