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Disclosure Requirements and Stock Exchange Listing Choice in an International Context

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  • John S. Hughes
  • Steven Huddart
  • Markus K Brunnermeier

Abstract

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 a minimize trading costs. We find that exchanges competing for trading volume engage in a ¶race for the top¶ whereunder 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 and harmonization of disclosure standards are modelled.

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File URL: http://www.lse.ac.uk/fmg/workingPapers/discussionPapers/fmg_pdfs/dp282.pdf
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Bibliographic Info

Paper provided by Financial Markets Group in its series FMG Discussion Papers with number dp282.

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Date of creation: Jan 1998
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Handle: RePEc:fmg:fmgdps:dp282

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Web page: http://www.lse.ac.uk/fmg/

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  1. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
  2. Spiegel, Matthew & Subrahmanyam, Avanidhar, 1992. "Informed Speculation and Hedging in a Noncompetitive Securities Market," Review of Financial Studies, Society for Financial Studies, vol. 5(2), pages 307-29.
  3. Chowdhry, Bhagwan & Nanda, Vikram, 1991. "Multimarket Trading and Market Liquidity," Review of Financial Studies, Society for Financial Studies, vol. 4(3), pages 483-511.
  4. Anat R. Admati, Paul Pfleiderer, 1988. "A Theory of Intraday Patterns: Volume and Price Variability," Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 3-40.
  5. Seyhun, H Nejat, 1992. "The Effectiveness of the Insider-Trading Sanctions," Journal of Law and Economics, University of Chicago Press, vol. 35(1), pages 149-82, April.
  6. Foster, F Douglas & Viswanathan, S, 1990. "A Theory of the Interday Variations in Volume, Variance, and Trading Costs in Securities Markets," Review of Financial Studies, Society for Financial Studies, vol. 3(4), pages 593-624.
  7. Verrecchia, Robert E., 1983. "Discretionary disclosure," Journal of Accounting and Economics, Elsevier, vol. 5(1), pages 179-194, April.
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