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Regulatory cooperation and foreign portfolio investment

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  • Lang, Mark
  • Maffett, Mark
  • Omartian, James D.
  • Silvers, Roger

Abstract

We investigate the effect of cross-border regulatory cooperation in the enforcement of securities laws on global-mutual-fund portfolio allocations. Our research design exploits a shock to the Securities and Exchange Commission’s oversight of foreign firms cross-listed on a US stock exchange around the signing of the Multilateral Memorandum of Understanding (MMoU), a non-binding, information-sharing arrangement between global securities regulators. In signatory countries, foreign investment in US-cross-listed firms increases by $110 billion relative to non-cross-listed firms. The strongest effects are for investors facing greater information asymmetries, those from countries closely linked to the US, and non-US foreign investors, suggesting significant spillover effects from international regulatory cooperation.

Suggested Citation

  • Lang, Mark & Maffett, Mark & Omartian, James D. & Silvers, Roger, 2020. "Regulatory cooperation and foreign portfolio investment," Journal of Financial Economics, Elsevier, vol. 138(1), pages 138-158.
    • Handle: RePEc:eee:jfinec:v:138:y:2020:i:1:p:138-158
    DOI: 10.1016/j.jfineco.2020.04.016
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    2. Chen, Xiaoqi & Chih-Chieh Chris, Hsieh & Tsang, Albert & Xiang, Yi, 2022. "Cross-border enforcement of securities laws and dividend payouts," The British Accounting Review, Elsevier, vol. 54(6).
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    4. Karel Hrazdil & Jeong-Bon Kim & Xin Li, 2023. "The Effect of the Security and Exchange Commission’s Investigations into Corporate Social Responsibility Performance," Sustainability, MDPI, vol. 15(19), pages 1-17, September.
    5. Kim, Jinhwan & Olbert, Marcel, 2022. "How does private firm disclosure affect demand for public firm equity? Evidence from the global equity market," Journal of Accounting and Economics, Elsevier, vol. 74(2).
    6. Albert Tsang & Yi Xiang & Miao Yu, 2023. "Cross‐border regulatory enforcement and corporate voluntary disclosure," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 50(3-4), pages 482-523, March.

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    More about this item

    Keywords

    Securities regulation; Foreign portfolio investment; Regulatory bonding;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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