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Capital-Market Effects of Securities Regulation: Prior Conditions, Implementation, and Enforcement

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  • Hans B. Christensen
  • Luzi Hail
  • Christian Leuz

Abstract

We examine the capital-market effects of changes in securities regulation in the European Union aimed at reducing market abuse and increasing transparency. To estimate causal effects for the population of E.U. firms, we exploit that for plausibly exogenous reasons, such as national legislative procedures, E.U. countries adopted these directives at different times. We find significant increases in market liquidity, but the effects are stronger in countries with stricter implementation and traditionally more stringent securities regulation. The findings suggest that countries with initially weaker regulation do not catch up with stronger countries, and that countries diverge more upon harmonizing regulation.Received August 3, 2015; accepted April 25, 2016, by Editor Andrew Karolyi.

Suggested Citation

  • Hans B. Christensen & Luzi Hail & Christian Leuz, 2016. "Capital-Market Effects of Securities Regulation: Prior Conditions, Implementation, and Enforcement," The Review of Financial Studies, Society for Financial Studies, vol. 29(11), pages 2885-2924.
    • Handle: RePEc:oup:rfinst:v:29:y:2016:i:11:p:2885-2924.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhw055
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    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

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