NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Publications by Luzi Hail

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January 2011Capital-Market Effects of Securities Regulation: Hysteresis, Implementation, and Enforcement
with Hans B. Christensen, Christian Leuz: w16737
This paper examines capital market effects of changes in securities regulation. We analyze two key directives in the European Union (EU) that tightened market abuse and transparency regulation and its enforcement. All EU member states were required to adopt these two directives, but did so at different points in time. Our research design exploits this differential timing of the same regulatory change to identify the capital-market effects. We also use cross-sectional variation in the strictness of implementation and enforcement as well as in prior regulation to analyze the role of these factors for regulatory outcomes. We find that, on average, market liquidity increases as EU countries tighten market abuse and transparency regulation. The effects are larger in countries that implement and...

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