Regulation Takes a Back Seat to Business Concerns: Evidence from Stock Exchange Demutualization

51 Pages Posted: 23 Feb 2020 Last revised: 16 Feb 2022

See all articles by Shawn X. Huang

Shawn X. Huang

Arizona State University (ASU) - School of Accountancy

Min Kim

Sogang University

Maria Rykaczewski

Arizona State University

Maria Vulcheva

Florida International University

Date Written: February 16, 2022

Abstract

Increasing globalization and rapid technological development in recent decades have caused many exchanges to change their operating structure, from mutually owned (broker/dealer-owned) to demutualized (for-profit, shareholder-owned). We examine the association between demutualization and changes in listed firms’ reporting quality. Prior research suggests that exchanges’ increased for-profit focus may cause weaker regulation and oversight of listed firms, and higher liquidity may allow listed firms to decrease transparency. Alternatively, demutualization may lead to tightening regulations to assure high-quality listings. We examine reporting quality changes of firms listed on de facto demutualized exchanges (i.e., exchanges that went public and became owned by multiple shareholders following demutualization). Our analyses show that reporting quality of listed firms declines post-demutualization. Additional tests suggest that these changes in reporting quality are attributable to changes in regulation and oversight. Overall, our findings speak to the firm-level reporting consequences of changes in exchanges’ operating structure.

Keywords: stock exchanges; exchange oversight; exchange regulation; demutualization; reporting quality

Suggested Citation

Huang, Shawn X. and Kim, Min and Rykaczewski, Maria and Vulcheva, Maria, Regulation Takes a Back Seat to Business Concerns: Evidence from Stock Exchange Demutualization (February 16, 2022). Available at SSRN: https://ssrn.com/abstract=3525501 or http://dx.doi.org/10.2139/ssrn.3525501

Shawn X. Huang

Arizona State University (ASU) - School of Accountancy ( email )

Tempe, AZ 85287
United States

Min Kim

Sogang University ( email )

Seoul 121-742
Korea, Republic of (South Korea)

Maria Rykaczewski (Contact Author)

Arizona State University ( email )

Tempe, AZ 85287
United States

Maria Vulcheva

Florida International University ( email )

11200 SW 8 Street RB244B
Miami, FL 33199
United States

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