Summary

This article argues that mandatory securities disclosure regulation has unanticipated and ill-considered consequences. Disclosure regulation makes some forms of behavior more expensive relative to others. Rational actors will respond by shifting some conduct into comparatively cheaper outlets. And these alternative behaviors may actually be less beneficial than the regulated, deterred behavior. Likewise, required disclosure of corporate information to investors makes shareholder governance less costly and more likely, even where it should be deterred. In essence, disclosure regulation effectively proscribes, it does not prescribe. Thus, depending on the viability of other behaviors, forced disclosure may induce unwanted behavioral responses. The article identifies two broad concepts that encapsulate these dynamics. The first is a “hydraulic theory” of securities disclosure regulation. Under this theory, disclosure regulation triggers behavioral hydraulics which may lead to an undesirable shift in executive behavior, as well as an undesirable shift in the pool of candidates for corporate executive positions. The second is an information cost theory of securities disclosure regulation. Under this theory, mandated disclosure is both unnecessary to market efficiency and affirmatively harmful to firms’ competitive schemes of corporate governance.

I don’t have much to add to Larry’s post about Eliot Spitzer’s persecution (and non-prosecution) of AIG and Maurice Greenberg, or to Larry’s ongoing crusade against the criminalization of agency costs.  But I just can’t resist registering my outrage. How can this sort of thing not make your blood boil? Other than a few lonely voices clamoring in the wilderness of the blogosphere, where is the outcry?  I’m not suggesting that those who are enraged by politicized prosecutions in other spheres should take up this cause, but a little sensible appreciation among the rest of us for the costs here would be nice. And while I’m thinking of it, let me add to Larry and Tom K’s despair about the egregious prosecution of Jamie Olis.

Read the full piece here. 

In a post titled, “Backdating: Yes, Virginia, Execs Do Want Inflated Pay?” over at PrawfsBlawg, Matt Bodie weighs in on the backdating “scandal”? As many of you know, the topic has been much-discussed of late here at TOTM and over at Larry Ribstein’s Ideoblog (who, it turns out, beat us to this punch), and you’re probably wondering when we’re ever going to stop. Well, we (Geoff and Josh) think Matt’s post is so misguided that it merits its own paragraph-by-paragraph rebuttal in this, TOTM’s first-ever co-authored blog post!

Read the full piece here.

Today’s WSJ has a great article by Holman Jenkins on reporting on the backdating “scandal.” Larry is, of course, on the case.  I would also — modestly — point out that much of what Jenkins says in his article today, I said in this space about four months ago, when the news was first breaking.

Read the full piece here.

Over at Co-op, guest blogger Eduardo Penalver posts this screed against property rights initiatives like Oregon’s Measure 37 (about which I blogged here) and Washington’s proposed Initiative I-933.  To my mind he gets it pretty much completely wrong, so I thought I should weigh in.

Read the full piece here.

My friend Seth Weinberger over at Security Dilemmas has a great post on why the left is actually to blame for the post-9/11 national security apparatus it (and many others) hates so much. Basically, it comes down to “when the only tool you have is a hammer, everything looks like a nail.”  When bigger government is your answer to every problem, don’t be too surprised when big government tries to actually solve every problem.

Read the full piece here.

Greetings loyal fans (i.e., “hi mom”) (actually, I’ve made this gag before, and so I think it’s time to set the record straight: My mom has almost certainly — nay, certainly — never, ever read this blog.  I’m pretty sure she has no idea what a blog is at all. She may not even be sure what a computer is.).

Read the full piece here.

My co-author, Marc Williamson, just alterted me to this section in the recently-published FTC/DOJ Merger Guidelines Commentary (.pdf)…

Read the full piece here.

While we’re talking about the ABA . . .

Brian Leiter asks whether the American Law Deans’ Association is opposed to tenure. The question is spurred by the ALDA’s comment (.doc) filed with the DOE on the ABA’s application for reaffirmation as a recognized accrediting body. Leiter cites to a blog post (which links to the ALDA’s comment) from Marina Angel (he attributes the post to Ann Bartow, but the post seems to be by Marina Angel) at the Feminist Law Professors Blog. There’s a follow up to the post here.

Read the full piece here.