Regulation takes a back seat to business concerns: international evidence from stock exchange demutualization

초록

In recent decades, increasing globalization and rapid technological development have caused many stock exchanges to change their ownership structure from mutually owned (broker/dealer-owned) to demutualized (for-profit, shareholder-owned). This study investigates whether increased for-profit focus weakens exchanges' monitoring incentives. Using multiple financial reporting quality metrics to capture monitoring efforts, we find that monitoring of listed firms declines post demutualization. Additional tests confirm that our findings are attributable to changes in oversight of the firms listed on demutualized exchanges (either by the exchange or the local regulator). These findings only hold among weak regulatory regimes, emphasizing the significance of strong, independent, country-level regulatory organizations in monitoring stock exchanges.

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