The Twilight Zone: OTC Regulatory Regimes and Market Quality / Ulf Brüggemann, Aditya Kaul, Christian Leuz, Ingrid M. Werner.

Format:

Book

Author/Creator:

Brüggemann, Ulf.

Contributor:

National Bureau of Economic Research.

Kaul, Aditya.

Leuz, Christian.

Werner, Ingrid M.

Series:

Working Paper Series (National Bureau of Economic Research) no. w19358.

NBER working paper series no. w19358

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Twilight Zone

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2013.

Summary:

We analyze a comprehensive sample of more than 10,000 U.S. OTC stocks. We provide much needed descriptive evidence on this market and show that the OTC market is a large, diverse, and dynamic trading environment with a rich set of regulatory and disclosure regimes, comprising venue rules and state laws beyond SEC regulation. We also exploit the institutional richness of the OTC market and analyze two key dimensions of market quality, liquidity and crash risk, across firms and regulatory regimes. We find that OTC firms that are subject to stricter regulatory regimes and disclosure requirements have higher market quality (higher liquidity and lower crash risk). Our analysis points to an important trade-off in regulating the OTC market and protecting investors: Lowering regulatory requirements (e.g., for disclosure) reduces the compliance burden for smaller firms, but also reduces market quality.

Notes:

Print version record

August 2013.