Stock market liberalization and the information environment

Abstract

We document beneficial associations between the information environment in emerging stock markets and changes in openness to foreign equity investors reflected in legal, regulatory, and cross-listing events, the fraction of stock available to foreign investors, and the size of U.S. portfolio flows. Increased openness is associated with increases in firm-specific information, analyst coverage, and analyst value-added, and decreases in earnings management. In particular, foreign analysts increase their presence, activity, and contribution to the information environment after openness increases. Across a detailed sample of Korean firms, however, such effects are dampened for firms that rate poorly on governance.