The Capital Market Effects of Centralizing Regulated Financial Information

Abstract

We study the capital market effects of information centralization by exploiting the staggered implementation of digital platforms for the centralized storage and access of regulated financial information (Officially Appointed Mechanisms, or OAMs) in the European Union. We find that the implementation of OAMs results in significant improvements in capital market liquidity. Improvements in liquidity are especially significant for small firms and firms with low levels of institutional ownership, consistent with information centralization improving liquidity by lowering information processing costs. Improvements in liquidity are also larger when peer learning opportunities are present, consistent with indirect effects of information centralization. Further, we provide descriptive evidence that the capital market effects of centralization are larger when an OAM is managed by a national regulator rather than a third party operator.

Keywords: Information centralization, information asymmetry, processing costs, liquidity, securities regulation

JEL Classification: G14, G15, G18, M41, M48