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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

Steven Huddart
Smeal College of Business, Penn State University, University Park, PA 16802-3603 USA
(814) 863-0048
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