Working Paper: NBER ID: w16737
Authors: Hans B. Christensen; Luzi Hail; Christian Leuz
Abstract: We examine the capital-market effects of changes in securities regulation in the European Union (EU) aimed at reducing market abuse and increasing transparency. To estimate causal effects for the population of EU firms, we exploit that for plausibly exogenous reasons, like national legislative procedures, EU 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.
Keywords: Securities Regulation; Market Liquidity; EU Directives
JEL Codes: F36; G12; G14; G15; G38; K22; M41; M48
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Market Abuse Directive (MAD) (G18) | market liquidity (G10) |
| Transparency Directive (TPD) (G38) | market liquidity (G10) |
| market liquidity (G10) | trading cost savings (F12) |
| market liquidity (G10) | benefits of improved securities regulation (G18) |
| regulatory quality (L15) | market liquidity (G10) |