What-Works-in-Securities-Laws

WhatWorksinSecuritiesLaws?Abstract•Publicenforcementbenefitsstockmarkets,butstrongevidencethatlawsmandatingdisclosureandfacilitatingprivateenforcementthroughliabilityrulesbenefitstockmarkets.I.IntroductionII.AMotivatingExampleIII.TheVariablesIV.SecuritieslawsandfinancialdevelopmentV.RobustnessVI.ConclusionIntroduction•Threebroadhypotheses：thenullhypothesis，andthetwoalternativehypothesesholdthatlawmatters.thenullhypothesis•Optimalgovernmentpolicyistodonothing.•Issuersofsecuritieshaveanincentivetodiscloseallavailableinformationtoobtainhigherpricessimplybecausefailuretodisclosewouldcauseinvestorstoassumetheworst•Thesecondhypothesis:thegovernmentcanstandardizetheprivatecontractingframeworktoimprovemarketdisciplineandprivatelitigation.•Thefinalhypothesis:evenwithasecuritieslawdescribingthedisclosureobligationsofvariouspartiesandliabilitystandards,privateenforcementincentivesareofteninsufficienttoelicithonestyfromissuers.AMotivatingExample•CoopagFinanceBV:issuer•ABNAmro:underwriter•Co-opAG:•Thefinancialstatementsincludedintheprospectusomitted214affiliatedcompaniesofCo-opAGwithdebtsofDM1.5billion.•ThebondpricesofCoopagFinanceBVplummetedafternegativeinformationaboutCo-opAGwaspublishedbyDutchnewspapers.TheVariablesDisclosureandLiabilityStandards:•(1)insiderscompensation;•(2)ownershipbylargeshareholders;•(3)insideownership;•(4)contractsoutsidethenormalcourseofbusiness;•(5)transactionswithrelatedparties.PublicEnforcement:•AttributesoftheSupervisor:Appointment;Tenure;Focus.•PoweroftheSupervisortoissuerules.•InvestigativePowersoftheSupervisor：Document；Witness.TableII•Commonandcivillawcountriesdiffersignificantlyinourmeasuresofdisclosure,liabilitystandards,andpublicenforcement.•Commonlawcountriesbothhavemoreextensivemandatorydisclosurerequirements,andmakeiteasierforinvestorstorecoverdamages.•Inthepublicenforcementarea,thesedifferencesaresmallerforSupervisorattributesandrule-makingpower,andgreaterforinvestigativepowers,orders,andcriminalsanctions.SecuritieslawsandfinancialdevelopmentTableIII•bothdisclosurerequirementsandliabilitystandardsarepositivelycorrelatedwithlargerstockmarkets.•Theresultsonliabilitystandardsarealsoconsistentlystrong.•Theresultsforpublicenforcementarelessconsistent.Securitieslawsandfinancialdevelopment•Thedevelopmentofstockmarketsisstronglyassociatedwithextensivedisclosurerequirementsandarelativelylowburdenofproofoninvestorsseekingtorecoverdamagesresultingfromomissionsofmaterialinformationfromtheprospectus.TableIV•Thepowertomakerulesistheonlyelementofpublicenforcementthatisstatisticallysignificant.•Nodimensionofpublicenforcementconsistentlymattersforthedevelopmentofstockmarkets.TableV•Disclosureissignificantinallregressions.•Publicenforcementisneversignificant.•Multicollinearitybetweendisclosureandliabilitystandardsmaybeofconcernasthecorrelation.•ConsistentwithTableIII,theanti-directorrightsindexisneversignificant.Robustness•Alltheevidencesuggeststhatrelyingonpubicenforcementisunlikelytobeausefulstrategyforjumpstartingthedevelopmentofsecuritiesmarketsinpoorcountries.Conclusion•Securitieslawsmatterbecausetheyfacilitateprivatecontractingratherthanprovideforpublicregulatoryenforcement.•Severalaspectsofpublicenforcementmatterinonlysomeregressions,bothextensivedisclosurerequirementsandstandardsofliabilityfacilitatinginvestorrecoveryoflossesareassociatedwithlargerstockmarkets.•Thebenefitsofcommonlawappeartolieinitsemphasisonprivatecontractingandstandardizeddisclosure,andinitsrelianceonprivatedisputeresolutionusingmarket-friendlystandardsofliability.