Does One Size Fit All? The Consequences of Switching Markets with Different Regulatory Standards


  • We thank an anonymous referee for very helpful suggestions, Andrea Randone, Roland Fejfar, Opal Jiang, and Vesa-Heikki Soini for excellent research assistance, and seminar participants at London Business School, Helsinki School of Economics, Tilburg University, Schulich School of Business at York University, the CEPR Gerzensee meetings and the American Finance Association conference for comments. The views expressed here are ours and we alone bear responsibility for any mistakes and inaccuracies. Correspondence: Tim Jenkinson and Tarun Ramadorai.


As the regulation of public companies has tightened, many companies have switched to stock exchanges with lower regulatory requirements. We analyse the consequences for smaller quoted companies of switching between the two London markets, which differ in their regulatory regimes. Firms that switch to lighter regulation experience, on average, negative announcement returns of approximately 5%. However there is a longer-term upward drift in stock returns after the switch. We relate these financial returns to improvements in operating performance in the years following the switch, suggesting that for some companies, and their investors, a lighter regulatory environment may be appropriate.