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

60 Pages Posted: 23 Feb 2020 Last revised: 28 Nov 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: November 22, 2022

Abstract

Increasing globalization and rapid technological development in recent decades have caused many stock exchanges to change their ownership structure from mutually owned (broker/dealer-owned) to demutualized (for-profit, shareholder-owned). This study investigates whether increased for-profit focus weakens exchanges’ monitoring incentives. Using multiple metrics for the quality of listed firms’ mandatory financial disclosure to capture exchanges’ monitoring efforts, we find that exchanges’ monitoring declines post-demutualization. Additional tests confirm that our findings are attributable to changes in oversight by stock exchanges. However, these findings only hold in weak regulatory regimes. This emphasizes the significance of strong, independent country-level regulatory organizations in monitoring stock exchanges.

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 (November 22, 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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