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

Colin Beardsley () and John R. O'Brien ()
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Colin Beardsley: ICMA Centre, Unversity of Reading
John R. O'Brien: Tepper School of Business, Carnegle Mellon University, USA

ICMA Centre Discussion Papers in Finance from Henley Business School, University of Reading

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'.

Keywords: Disclosure; Regulation; Game Theory; Stackelberg Leader; Cost of Capital: information asymmetry (search for similar items in EconPapers)
JEL-codes: C1 C7 D8 G2 M4 (search for similar items in EconPapers)
Pages: 59 pages
Date: 2004-06
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