Stock Market Liberalization and the Information Environment

Abstract

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