Showing 9 of 534 Publications in Financial Regulation & Corporate Governance

On disclosure: The hydraulic theory

TOTM We know that people respond to incentives, and that behavior will adjust in response to relative changes in price. But I think it’s commonly assumed . . .

We know that people respond to incentives, and that behavior will adjust in response to relative changes in price. But I think it’s commonly assumed that the only relevant price change attributable to disclosure regulations is the nominal change in direct costs of compliance. Sure, we all understand that if shareholder or regulatory pressure is brought to bear on corporate actors as a consequence of disclosure, that pressure can change behavior. But for some reason we’re unduly optimistic about this change; we just assume it will be for the better (you know, because “sunlight is a good disinfectant.” Brandeis said so).

Read the full piece here.

Continue reading
Financial Regulation & Corporate Governance

Nacchio’s Puzzling (Innovative?) Defense

TOTM An article in today’s W$J reports on former Qwest CEO Joseph Nacchio’s planned defense in a criminal insider trading action brought by the SEC. The . . .

An article in today’s W$J reports on former Qwest CEO Joseph Nacchio’s planned defense in a criminal insider trading action brought by the SEC. The defense is perplexing.

Read the full piece here.

Continue reading
Financial Regulation & Corporate Governance

Correcting "The Ethicist" on Insider Trading

TOTM In yesterday’s New York Times Magazine, an anonymous reader posed the following question to The Ethicist… Read the full piece here.

In yesterday’s New York Times Magazine, an anonymous reader posed the following question to The Ethicist…

Read the full piece here.

Continue reading
Financial Regulation & Corporate Governance

Google’s resistance and corporate social responsibility

TOTM The government subpoenas Google’s records, and also Yahoo!’s and Microsoft’s. MSFT and YHOO cave: Their stocks are down a little over and a little under . . .

The government subpoenas Google’s records, and also Yahoo!’s and Microsoft’s. MSFT and YHOO cave: Their stocks are down a little over and a little under 2%, respectively. Google resists. Its stock drops almost 9%. And yet a headline for an article by MSNBC’s chief economics correspondent–with the relevant stock prices immediately alongside–notes, “Google stand could be good for business.” Maybe he’s talking about Microsoft’s business?

Read the full piece here.

Continue reading
Financial Regulation & Corporate Governance

In international blog news

TOTM First, Joel Trachtman of Tufts’ (great and soon-to-be better) Fletcher School has started up a new international trade blog, called International Economic Law and Policy. . . .

First, Joel Trachtman of Tufts’ (great and soon-to-be better) Fletcher School has started up a new international trade blog, called International Economic Law and Policy. If you know anything about international trade law and/or economics, you know Joel Trachtman and thus you know that this will be a must-read. He has been joined at the blog by Columbia Law’s Petros Mavroidis.

Read the full piece here.

Continue reading
Financial Regulation & Corporate Governance

On disclosure, a continuing series

TOTM We all know that our securities regulatory regime is predominantly a disclosure regime, meaning the regulators, for the most part, don’t impose substantive regulations on . . .

We all know that our securities regulatory regime is predominantly a disclosure regime, meaning the regulators, for the most part, don’t impose substantive regulations on securities issuers, but require only accurate, timely disclosure of certain information. And as against a more intrusive, substantive regime, I think this is preferable, even in its current, fairly intrusive form. But too often disclosure is presumed by commentators (and regulators) to be fairly costless — meaning that, even if it doesn’t do what it’s supposed to do, it imposes no great cost, and if it succeeds it does so quite cheaply. This is what Larry means when he refers to regulations as “chicken soup.” I think this presumption is often under-supported.

Read the full piece here.

Continue reading
Financial Regulation & Corporate Governance

Backdating Options and Why Executive Compensation is Not All about Norms

Scholarship In this short essay, we take on some of the common claims surrounding the law and economics of the backdating of options. Most of these claims are rooted in the basic argument that backdating options amounts to concealment of compensation.

Summary

In this short essay, we take on some of the common claims surrounding the law and economics of the backdating of options. Most of these claims are rooted in the basic argument that backdating options amounts to concealment of compensation. While we agree that backdating may have amounted to a technical rule violation in some cases, there is actually no concealment and, in fact, backdated options are fully disclosed when granted, and their value incorporated into stock price. We also challenge a few other myths surrounding the practice of backdating options.

Continue reading
Financial Regulation & Corporate Governance

Government Regulation of Irrationality: Moral and Cognitive Hazards

Scholarship Abstract Behavioral law and economics scholars who advance paternalistic policy proposals typically employ static models of decision-making behavior, despite the dynamic effects of paternalistic policies. . . .

Abstract

Behavioral law and economics scholars who advance paternalistic policy proposals typically employ static models of decision-making behavior, despite the dynamic effects of paternalistic policies. In this article, we consider how paternalistic policies fare under a dynamic account of decision-making that incorporates learning and motivation effects. This approach brings out two important limitations on the efficiency effects of paternalistic regulations. First, if preferences and biases are endogenous to institutional forces, paternalistic government regulations may perpetuate and even magnify a given bias and cause other adverse psychological effects. Second, for some biases, it will be more efficient to invest resources in debiasing than to change legal rights and remedies or, in some cases, to do nothing in light of the natural variation in irrational propensities. We propose dynamic models for determining ex ante and ex post when accommodation of bias will be second-best efficient. These models direct decision-makers to consider (1) the efficiency cost of the bias; (2) the extent to which accommodation worsens the bias or, alternatively, the extent to which non-accommodation improves the bias or has other benefits; and (3) the potential for education or other mechanisms to debias an individual. We argue that the concept of “cognitive hazard” – the potential for the costs of a bias to increase as individuals are insulated from the adverse effects of the bias – should be added to the concept of moral hazard as important qualifications to paternalistic proposals.

Continue reading
Financial Regulation & Corporate Governance

Use and Misuse of Business Documents in Antitrust Enforcement & Adjudication

Scholarship In this article we examine the use of business documents to prove antitrust violations. Such usage has long occurred in the courts and regulatory agencies. More recently, there has been a scholarly effort to justify the use of such documents and the rhetoric they contain in antitrust analysis.

Summary

This Article considers the implications for antitrust law and policy of the relationship between business rhetoric and economic analysis. We maintain that antitrust analysis should remain firmly rooted in economics and that courts must be wary of the role of business rhetoric in antitrust analysis and adjudication. This is not to say that “market realities” reflected in business documents and testimony should not be considered in antitrust cases. Rather, courts and policy makers should recognize the distinction between the market realities themselves and expressions or characterizations of those realities for legally irrelevant business purposes. An important implication is that regulators’ and courts’ reliance on business documents is misplaced, and much of this material should be excluded from consideration by courts.

Continue reading
Antitrust & Consumer Protection