Do Investors Value High Levels of Regulation

Tim Jenkinson and Tarun Ramadorai

OFRC Working Papers Series from Oxford Financial Research Centre

Abstract: It is often taken as axiomatic that investors prefer high levels of regulation. Yet companies have increasingly chosen to list on stock exchanges with lower regulatory requirements. In this paper we analyse whether investors value high regulatory standards for quoted companies. We use the unusual regulatory environment observed in London – two alternative regulatory regimes with the same trading technology – to analyse these issues. We focus on 218 firms that chose to switch their trading ‘down’ from the highly regulated Main market to the lightly regulated AIM market, and 56 firms that moved ‘up’ to the Main market. Switching firms on average experience down (up) announcement returns of approximately -4% (+5%). However these initial reactions are reversed over several months after the actual switch. Our results suggest that particular investor clienteles exist for the two markets, and that other investors who place little value on the higher regulatory standards become the relevant marginal investors when companies switch to AIM.

Keywords: stock markets; listing; regulation; switching (search for similar items in EconPapers)
JEL-codes: G14 G30 (search for similar items in EconPapers)
Pages: 45
Date: 2008
New Economics Papers: this item is included in nep-reg
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Working Paper: Do Investors Value High Levels of Regulation? (2008)
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