Corporate law and Securities Markets
3 important questions on Corporate law and Securities Markets
What is one potential advantage and one potential disadvantage of reducing liquidity by reducing the amount of information available in capital markets? TQ
P 245
Advantage: Less liquidity would reduce the incentives for trading with a very short time horizon and would therefore push investors to take a longer view
Disadvantage: However, this is an indirect, seemingly costly and ineffective way of attaining this goal.
Advantage: Less liquidity would reduce the incentives for trading with a very short time horizon and would therefore push investors to take a longer view
Disadvantage: However, this is an indirect, seemingly costly and ineffective way of attaining this goal.
What are the three main justifications for mandatory disclosure requirements? TQ
P 246
1. Agency problems within corporations: corporate insiders might prefer to suppress bad news, for example, managers to obtain higher compensation or shareholders to prevent a decrease in the share price.
2. The private benefits of disclosure to issuers may be less than its social benefit to market participants: sensitive disclosure might damage one firm but if all firms disclose, this will benefit the market as a whole by increasing aggregate returns and reducing market volatility.
3. The value of standardization of substance, format and quality, which solves a coordination problem among firms by improving the comparability of disclosed information.
1. Agency problems within corporations: corporate insiders might prefer to suppress bad news, for example, managers to obtain higher compensation or shareholders to prevent a decrease in the share price.
2. The private benefits of disclosure to issuers may be less than its social benefit to market participants: sensitive disclosure might damage one firm but if all firms disclose, this will benefit the market as a whole by increasing aggregate returns and reducing market volatility.
3. The value of standardization of substance, format and quality, which solves a coordination problem among firms by improving the comparability of disclosed information.
How do US public and private enforcement of securities law influence each other? TQ
P 260
Vibrant private litigation in the US prompts public enforcers to be more active themselves while, conversely, private litigation feeds on evidence gathered by the public enforcers
Vibrant private litigation in the US prompts public enforcers to be more active themselves while, conversely, private litigation feeds on evidence gathered by the public enforcers
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