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Disclosure requirements and stock exchange listing choice in an international context

Steven Huddart, John S. Hughes, and Markus Brunnermeier

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 to 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 also are modeled.

JEL Classification: G15 M41 K22

Keywords: insider trading, exchange listing requirements, liquidity, securities regulation

Journal of Accounting & Economics Volume 26, Numbers 1-3 (January 1999) 237-269

Econbase abstract for this paper

Download a pre-publication version of the paper from SSRN.

download pdf file of slides presented at the 1998 Western Finance Association meetings

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Steven Huddart
Smeal College of Business, Penn State University, University Park, PA 16802-3603 USA
(814) 865-3271
(814) 863-8393 fax
huddart@psu.edu
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