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The Effectiveness of Britain's Financial Service Authority: An Economic Analysis

Author

Listed:
  • 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”.

Suggested Citation

  • Colin Beardsley & John R. O'Brien, 2004. "The Effectiveness of Britain's Financial Service Authority: An Economic Analysis," ICMA Centre Discussion Papers in Finance icma-dp2004-11, Henley Business School, Reading University.
  • Handle: RePEc:rdg:icmadp:icma-dp2004-11
    as

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    File URL: http://www.icmacentre.ac.uk/pdf/discussion/DP2004-12.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Disclosure; Regulation; Game Theory; Stackelberg Leader; Cost of Capital: information asymmetry;

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G2 - Financial Economics - - Financial Institutions and Services
    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting

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