Colin Beardsley () (ICMA Centre, Unversity of Reading) John R. O'Brien () (Tepper School of Business, Carnegle Mellon University, USA)
Abstract
Sweeping regulatory reforms in Britain resulted in the formation of the Financial Services Authority (FSA). Because greater transparency of information is a major objective for this Act, shifting from one information system to another has re-distributive effects. We identify these effects at a sector level and their drivers at the firm level. At a sector level, FSA has generally increased the precision of investors’ priors reducing the information risk component of the cost of capital. At a firm level, large firms act as “Stackelberg leaders” in voluntary disclosure games. FSA regulation shifts power from leaders to “followers”.
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