Stock Market Liberalization and the Information Environment
51 Pages Posted: 17 May 2004
Date Written: January 5, 2005
We document beneficial associations between openness to foreign equity investors and the information environment in emerging stock markets. Openness is reflected in legal, regulatory, and cross-listing events, the fraction of stock available to foreign investors, and the size of U.S. portfolio flows. We find that firm-specific information, analyst coverage, and value-added by analysts increase with openness to foreign equity investment while earnings management tends to decline. Large changes in earnings-related information variable are attributed to foreign analysts who increase their presence, activity, and contribution after openness increases. Across a detailed sample of Korean firms, however, such effects are dampened for firms that rate poorly on governance.
Keywords: Stock market liberalization, international portfolio flows, emerging markets
JEL Classification: D82, F02, F36, G15
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