Capital Market Governance: How Do Security Laws Affect Market Performance?
53 Pages Posted: 21 Apr 2005
Date Written: February 16, 2006
Abstract
This paper examines the link between capital market governance (CMG) and several key measures of market performance. Using detailed data from individual stock exchanges, we develop a composite CMG index that captures three dimensions of security laws: the degree of earnings opacity, the enforcement of insider laws, and the effect of removing short-selling restrictions. We find that improvements in the CMG index are associated with decreases in the cost-of-equity capital (both implied and realized), increases in market liquidity (trading volume and market depth), and increases in market pricing efficiency (reduced price synchronicity and IPO underpricing). The results are quite consistent across individual components of CMG and over alternative market performance measures.
Keywords: capital market governance, insider trading, earnings opacity, market performance
JEL Classification: G15, G30
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
A Survey of Corporate Governance
By Andrei Shleifer and Robert W. Vishny
-
The Separation of Ownership and Control in East Asian Corporations
By Stijn Claessens, Simeon Djankov, ...
-
One Share/One Vote and the Market for Corporate Control
By Sanford J. Grossman and Oliver Hart