The Capital Market Effects of Centralizing Regulated Financial Information

72 Pages Posted: 30 Sep 2020 Last revised: 27 Nov 2023

See all articles by Gurpal Sran

Gurpal Sran

New York University (NYU) - Leonard N. Stern School of Business

Marcel Tuijn

Southern Methodist University (SMU); Erasmus University Rotterdam (EUR)

Lauren Vollon

University of Notre Dame - Mendoza College of Business

Date Written: August 1, 2020

Abstract

We study the capital market effects of information centralization by exploiting the staggered implementation of digital storage and access platforms for 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, consistent with the notion that OAMs lower investors’ processing costs. The findings are more pronounced when processing costs are high to begin with, that is, when firms (i) are small and receive low business press coverage and (ii) have high levels of retail ownership. We then identify a mechanism through which centralization facilitates capital market effects: information spillovers. First, we find that liquidity improvements are larger when OAMs have features that easily allow investors to search for peer firm information. Second, liquidity improvements are larger for firms with a high share of industry peers operating on the same OAM and for firms with a high share of small, low-coverage peers on that OAM. Third, around the annual report release dates of peer firms, focal-firm liquidity improves and focal-peer stock return synchronicity increases. Overall, our evidence suggests that, even in a modern information age, information centralization improves capital market liquidity and facilitates the acquisition and use of peer firm information.

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

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

Suggested Citation

Sran, Gurpal and Tuijn, Marcel and Vollon, Lauren, The Capital Market Effects of Centralizing Regulated Financial Information (August 1, 2020). Available at SSRN: https://ssrn.com/abstract=3673618 or http://dx.doi.org/10.2139/ssrn.3673618

Gurpal Sran (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

Marcel Tuijn

Southern Methodist University (SMU)

6212 Bishop Blvd.
Dallas, TX 75275
United States

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Lauren Vollon

University of Notre Dame - Mendoza College of Business ( email )

Notre Dame, IN 46556
United States

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