Disclosure Requirements and Stock Exchange Listing Choice in an International Context

This paper analyzes whether competition between stock exchanges for volume leads to a deterioration of disclosure requirements imposed by those exchanges on listing firms. The model shows that trading concentrates on the high disclosure exchange, prompting exchanges to engage in a quot;race for the topquot; by requiring the highest level of disclosure for listed firms. Disclosure requirements affect the allocation of liquidity across exchanges and the listing decisions of firms controlled by corporate insiders. In effect, corporate insiders compete with each other for liquidity to their mutual disadvantage. Introducing risk aversion on the part of liquidity traders creates a diversification motive to allocate demands to a low disclosure exchange. Listing costs, taxes, and other restrictions may prompt some firms to list on the low disclosure exchange. Despite these additional features, each exchange maximizes trading volume by selecting the highest feasible standards