Abstract
Financial service providers belong to the most intensively regulated institutions at all, and to be compliant with regulation is a challenging and expensive task for each bank. Recent research indicates that a high geographic proximity to a regulatory supervisor might increase the monitoring intensity and therefore harm the shareholder wealth of monitored institutions. The announced relocation of the European Banking Authority (EBA) from London to Paris offers a natural experiment to test the effect of geographically close regulation on the market value of financial institutions. Our results show that the EBA relocation indeed induced negative abnormal stock returns for French banks. Additionally, we document that this is a bank specific effect. The parallel relocation decision of the European Medicines Agency (EMA) to Amsterdam does not result in abnormal returns of Dutch pharmaceutical corporations. Obviously, a relationship between distance and intensified monitoring exists for banks but not for pharmaceuticals.