The Capital Market Effects of Centralizing Regulated Financial Information

We study the relation between the centralization of regulated financial information, information asymmetry, and capital market liquidity. Specifically, we exploit the staggered implementation of digital storage and access facilities (called Officially Appointed Mechanisms, or OAMs) for regulated financial information in the European Union. We find that the implementation of OAMs results in significant improvements in capital market liquidity. Improvements in liquidity associated with centralization are especially significant for small firms and firms with low levels of institutional ownership. This evidence is consistent with the hypothesis that lowering information processing costs by centralizing information leads to improved liquidity, especially when information processing costs are high. Further, we provide descriptive evidence on the capital market implications of OAM design and oversight