Regulatory Cooperation and Foreign Portfolio Investment
Journal of Financial Economics (JFE), Forthcoming
Ross School of Business Paper No. 1385
Kenan Institute of Private Enterprise Research Paper No. 18-38
30 Pages Posted: 8 Aug 2018 Last revised: 6 Oct 2019
Date Written: September 30, 2019
Abstract
We investigate the effect of cross-border regulatory cooperation in the enforcement of securities laws on global-mutual-fund portfolio allocations. Our research design exploits a shock to the Securities and Exchange Commission's oversight of foreign firms cross-listed on a US stock exchange around the signing of the Multilateral Memorandum of Understanding (MMoU), a non-binding, information-sharing arrangement between global securities regulators. In signatory countries, foreign investment in US-cross-listed firms increases by $110 billion relative to non-cross-listed firms. The strongest effects are for investors facing greater information asymmetries, those from countries closely linked to the US, and non-US foreign investors, suggesting significant spillover effects from international regulatory cooperation.
Keywords: Securities regulation, Foreign portfolio investment, Regulatory bonding
JEL Classification: G11, G15, G18
Suggested Citation: Suggested Citation