Do Countries Matter for Information Diffusion in Financial Markets? Evidence from Global Supply-Chain Networks

We document large cross-sectional variation in the speed of information diffusion between U.S. suppliers and their international principal customers. Based on the rigorous and comprehensive framework of risks in emerging markets from Karolyi (2015), we find that market operating efficiency is the predominant country-level characteristic among six major dimensions in explaining this cross-sectional variation. Our results are robust under both panel data analysis and a quasi-natural experiment using exogenous short-selling regulation changes. We suggest that country-level characteristics play an important and distinct role in determining the diffusion of firm-specific information in international financial markets. Our results indicate that stock price efficiency of U.S. firms is partially determined by the institutional and regulatory environment abroad