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Capital Market Governance: How Do Security Laws Affect Market Performance?

Hazem Daouk, Charles Lee and David Ng ()

No 127078, Working Papers from Cornell University, Department of Applied Economics and Management

Abstract: This paper examines the link between capital market governance (CMG) and several key measures of market performance. Using detailed data from individual stock exchanges, we develop a composite CMG index that captures three dimensions of security laws: the degree of earnings opacity, the enforcement of insider laws, and the effect of removing short-selling restrictions. We find that improvements in the CMG index are associated with decreases in the cost-of-equity capital (both implied and realized), increases in market liquidity (trading volume, market depth, and U.S. foreign investments), and increases in market pricing efficiency (reduced price synchronicity and IPO underpricing). The results are quite consistent across individual components of CMG and over alternative market performance measures.

Keywords: Marketing (search for similar items in EconPapers)
Pages: 57
Date: 2005
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:cudawp:127078

DOI: 10.22004/ag.econ.127078

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