Institutional mobility in global capital markets

When financial conduct in one country intrudes on another country, country-level institutional features (e.g., securities laws and their enforcement) cease to be effective because of jurisdictional limitations. In this study, we focus on how fragmented regulatory authority exposes global capital market participants to expropriation and information risks. We explore securities regulators’ use of cooperative instruments. These instruments enable country-level institutional features to reach foreign jurisdictions. Using a powerful research design that controls for country-level factors (even time-variant ones), we find that cooperation is associated with the volume of deals in the cross-border merger and acquisition (M&A) market (in both number and dollar-value terms). Additional tests indicate larger effects of cooperation in country pairs where pre-cooperation M&A is scant (consistent with an extensive margin of investment). Moreover, we find that subtle and previously unexplored legal issues affect firm value in ways that refine the bonding hypothesis. Ultimately, we conclude that institutional features determined at the country-pair level are key determinants of economic outcomes in global markets.