Disclosure Requirements and Stock Exchange Listing Choice in an International Context
40 Pages Posted: 11 Nov 1997
Date Written: February 6, 1998
We use a rational expectations model to examine how public disclosure requirements affect listing decisions by rent-seeking corporate insiders, and allocation decisions by liquidity traders seeking to minimize trading costs. We find that exchanges competing for trading volume engage in a "race for the top" where under disclosure requirements increase and trading costs fall. This result is robust to diversification incentives of risk-averse liquidity traders, institutional impediments that restrict the flow of liquidity, and listing costs. Under certain conditions, unrestricted liquidity flows to low disclosure exchanges. The consequences of cross-listing also are modeled.
JEL Classification: G15, M41, M45, K22
Suggested Citation: Suggested Citation