This short piece is on the merits of government regulation of hedge funds. The article begins with background information on hedge funds and the current state of their regulation. After sifting through the various reasons advanced for regulating hedge funds, and focusing on three in particular - short selling, leverage and funds of funds, I argue that extensive direct regulation of hedge funds is unnecessary and may harm the country's trading markets. Indeed, the dramatic growth of hedge funds is in part attributable to the current overregulation of registered investment companies. We should, therefore, not tighten the regulation of hedge funds but lighten the regulation of registered investment companies. I also argue, however, that strengthening of some forms of indirect regulation of hedge fund leverage, principally limits on banks that lend to and are counterparties of hedge funds, may make sense.
{"title":"Regulating Hedge Funds","authors":"D. Oesterle","doi":"10.2139/SSRN.913045","DOIUrl":"https://doi.org/10.2139/SSRN.913045","url":null,"abstract":"This short piece is on the merits of government regulation of hedge funds. The article begins with background information on hedge funds and the current state of their regulation. After sifting through the various reasons advanced for regulating hedge funds, and focusing on three in particular - short selling, leverage and funds of funds, I argue that extensive direct regulation of hedge funds is unnecessary and may harm the country's trading markets. Indeed, the dramatic growth of hedge funds is in part attributable to the current overregulation of registered investment companies. We should, therefore, not tighten the regulation of hedge funds but lighten the regulation of registered investment companies. I also argue, however, that strengthening of some forms of indirect regulation of hedge fund leverage, principally limits on banks that lend to and are counterparties of hedge funds, may make sense.","PeriodicalId":336554,"journal":{"name":"Corporate Law: Securities Law","volume":"14 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2006-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125979674","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper is based on a presentation made at the New York Stock Exchange Conference on the Future of Global Equity Trading, March 12, 2004, Sarasota, FL. Looking back, was it a momentary enthusiasm? The dramatic increase in cross-listed securities, particularly in the United States, was one of the remarkable phenomena of the 1990s capital markets. The bonding, or corporate governance, hypothesis was one of the more intriguing theories to surface to explain the phenomenon. Cross-listing, the hypothesis suggested, might be a bonding mechanism by which firms, incorporated in a jurisdiction with weak protection of minority shareholder rights or poor enforcement mechanisms, could voluntarily subject themselves to higher disclosure standards and stricter enforcement of the US markets in order to attract investors. By focusing on shareholder protection as key to cross-listing, the bonding hypothesis became inextricably linked to an important and influential body of academic work, the law and finance literature. As intriguing as the bonding hypothesis is, this article argues that it offers only a partial explanation for the cross-listing phenomenon in the United States in the 1990s. Largely overlooked has been the main motor driving the exponential growth of cross-listings on the NYSE and NASDAQ in the 1990s: Canadian-based interlisted corporations (CBIs). CBIs form the largest single group of interlisted foreign corporations in the United States, by a huge margin, representing over 25% all interlistings on the NYSE, NMS-NASDAQ and AMEX in 2004. In fact, Canadian issuers form the largest single group of foreign private issuers (FPIs) in the United States, period. In 2004, there were nearly five times as many Canadian FPIs as the next largest national group, United Kingdom issuers. The bonding hypothesis does not explain CBIs easily. CBIs do not come from a weak investor protection jurisdiction and, for a variety of reasons and in a number of ways, tend not to signal their entry into the US market. Rather than bonding, CBIs have been adroitly exploiting what financial economists have described as the home bias of US portfolio investors. CBIs have been, at least until very recently, chameleons, deliberately blending into the woodwork of the US markets. This article will look at what makes CBIs different from most other interlisted companies and why the bonding hypothesis may not be explanatory of their behavior. In doing so, the article questions some of the underlying assumptions of the law and finance literature which supports the bonding hypothesis. Finally, the article considers implications of the CBI experience which may merit further consideration going forward.
{"title":"The Chameleon Effect: Beyond the Bonding Hypothesis for Cross-Listed Securities","authors":"Cally Jordan","doi":"10.2139/SSRN.901768","DOIUrl":"https://doi.org/10.2139/SSRN.901768","url":null,"abstract":"This paper is based on a presentation made at the New York Stock Exchange Conference on the Future of Global Equity Trading, March 12, 2004, Sarasota, FL. Looking back, was it a momentary enthusiasm? The dramatic increase in cross-listed securities, particularly in the United States, was one of the remarkable phenomena of the 1990s capital markets. The bonding, or corporate governance, hypothesis was one of the more intriguing theories to surface to explain the phenomenon. Cross-listing, the hypothesis suggested, might be a bonding mechanism by which firms, incorporated in a jurisdiction with weak protection of minority shareholder rights or poor enforcement mechanisms, could voluntarily subject themselves to higher disclosure standards and stricter enforcement of the US markets in order to attract investors. By focusing on shareholder protection as key to cross-listing, the bonding hypothesis became inextricably linked to an important and influential body of academic work, the law and finance literature. As intriguing as the bonding hypothesis is, this article argues that it offers only a partial explanation for the cross-listing phenomenon in the United States in the 1990s. Largely overlooked has been the main motor driving the exponential growth of cross-listings on the NYSE and NASDAQ in the 1990s: Canadian-based interlisted corporations (CBIs). CBIs form the largest single group of interlisted foreign corporations in the United States, by a huge margin, representing over 25% all interlistings on the NYSE, NMS-NASDAQ and AMEX in 2004. In fact, Canadian issuers form the largest single group of foreign private issuers (FPIs) in the United States, period. In 2004, there were nearly five times as many Canadian FPIs as the next largest national group, United Kingdom issuers. The bonding hypothesis does not explain CBIs easily. CBIs do not come from a weak investor protection jurisdiction and, for a variety of reasons and in a number of ways, tend not to signal their entry into the US market. Rather than bonding, CBIs have been adroitly exploiting what financial economists have described as the home bias of US portfolio investors. CBIs have been, at least until very recently, chameleons, deliberately blending into the woodwork of the US markets. This article will look at what makes CBIs different from most other interlisted companies and why the bonding hypothesis may not be explanatory of their behavior. In doing so, the article questions some of the underlying assumptions of the law and finance literature which supports the bonding hypothesis. Finally, the article considers implications of the CBI experience which may merit further consideration going forward.","PeriodicalId":336554,"journal":{"name":"Corporate Law: Securities Law","volume":"42 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2006-05-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126887005","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This Article examines the emergence of modern regulation of information flows in securities markets in the form of restrictions on insider trading and Chinese Walls within financial intermediaries during the 1960s and early 1970s. It is argued that these regulatory developments can be traced to the demise of the fixed brokerage commissions regime on the New York Stock Exchange and other national securities exchanges and the corresponding use of inside information by brokers as a means of competing for brokerage revenues. In fact, the overall enforcement program of the SEC, which led to insider trading regulation and the creation of Chinese Walls, was strongly influenced by the existence of the fixed brokerage commissions regime and the related concern about the representation of financial institutions on corporate boards. This Article also examines the evolution of the fixed brokerage commissions regimes in the United Kingdom and Japan and argues that such price controls strongly influenced insider trading practices and the emergence of the regulation of information flows in these countries.
{"title":"Insider Trading, Chinese Walls, and Brokerage Commissions: The Origins of Modern Regulation of Information Flows in Securities Markets","authors":"S. Dolgopolov","doi":"10.2139/ssrn.897180","DOIUrl":"https://doi.org/10.2139/ssrn.897180","url":null,"abstract":"This Article examines the emergence of modern regulation of information flows in securities markets in the form of restrictions on insider trading and Chinese Walls within financial intermediaries during the 1960s and early 1970s. It is argued that these regulatory developments can be traced to the demise of the fixed brokerage commissions regime on the New York Stock Exchange and other national securities exchanges and the corresponding use of inside information by brokers as a means of competing for brokerage revenues. In fact, the overall enforcement program of the SEC, which led to insider trading regulation and the creation of Chinese Walls, was strongly influenced by the existence of the fixed brokerage commissions regime and the related concern about the representation of financial institutions on corporate boards. This Article also examines the evolution of the fixed brokerage commissions regimes in the United Kingdom and Japan and argues that such price controls strongly influenced insider trading practices and the emergence of the regulation of information flows in these countries.","PeriodicalId":336554,"journal":{"name":"Corporate Law: Securities Law","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2006-04-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131213390","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The U.S. Treasury announced in August 2005 that it is exploring whether to provide a backstop securities lending facility for U.S. Treasury securities. This paper examines the conceptual basis for such a facility by analogizing the market for borrowing and lending Treasury securities with the market for borrowing and lending money prior to the founding of the Federal Reserve System in 1914. An inelastic supply of currency in the nineteenth century led to periodic suspensions of convertibility of bank deposits; Congress authorized a system of Federal Reserve Banks to address the problem. A similarly inelastic supply of Treasury securities has led to several recent episodes of chronic settlement fails. A backstop lending facility would mitigate the fails problem by allowing the Treasury to act as a lender of last resort of Treasury securities during periods of unusual market stress.
{"title":"Why is the U.S. Treasury Contemplating Becoming a Lender of Last Resort for Treasury Securities?","authors":"K. Garbade, J. Kambhu","doi":"10.2139/SSRN.829004","DOIUrl":"https://doi.org/10.2139/SSRN.829004","url":null,"abstract":"The U.S. Treasury announced in August 2005 that it is exploring whether to provide a backstop securities lending facility for U.S. Treasury securities. This paper examines the conceptual basis for such a facility by analogizing the market for borrowing and lending Treasury securities with the market for borrowing and lending money prior to the founding of the Federal Reserve System in 1914. An inelastic supply of currency in the nineteenth century led to periodic suspensions of convertibility of bank deposits; Congress authorized a system of Federal Reserve Banks to address the problem. A similarly inelastic supply of Treasury securities has led to several recent episodes of chronic settlement fails. A backstop lending facility would mitigate the fails problem by allowing the Treasury to act as a lender of last resort of Treasury securities during periods of unusual market stress.","PeriodicalId":336554,"journal":{"name":"Corporate Law: Securities Law","volume":"9 4 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2006-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116777033","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper studies mandatory disclosure documents filed during the period 1933-35 in response to the Securities Act of 1933 and the Securities Exchange Act of 1934. Our sample companies are all listed on the New York Stock Exchange (NYSE) and therefore subject to the NYSE’s disclosure requirements at the time of the regulatory filings. We ask whether the additional disclosures contained in the filed documents constitute information. Using newly-available daily price, volume, and bid and ask quotation data, we test whether the filings are associated with changes in bid-ask spreads, return autocovariance, turnover, volatility, or no-trade days. We find almost no evidence that the new disclosures required by the securities laws—principally having to do with management compensation and large shareholdings—reduced informational asymmetry. We also find no evidence that earnings reports were more informative after enactment of the securities laws.
{"title":"Mandatory vs. Contractual Disclosure in Securities Markets: Evidence from the 1930s","authors":"P. Mahoney, J. Mei","doi":"10.2139/ssrn.883706","DOIUrl":"https://doi.org/10.2139/ssrn.883706","url":null,"abstract":"This paper studies mandatory disclosure documents filed during the period 1933-35 in response to the Securities Act of 1933 and the Securities Exchange Act of 1934. Our sample companies are all listed on the New York Stock Exchange (NYSE) and therefore subject to the NYSE’s disclosure requirements at the time of the regulatory filings. We ask whether the additional disclosures contained in the filed documents constitute information. Using newly-available daily price, volume, and bid and ask quotation data, we test whether the filings are associated with changes in bid-ask spreads, return autocovariance, turnover, volatility, or no-trade days. We find almost no evidence that the new disclosures required by the securities laws—principally having to do with management compensation and large shareholdings—reduced informational asymmetry. We also find no evidence that earnings reports were more informative after enactment of the securities laws.","PeriodicalId":336554,"journal":{"name":"Corporate Law: Securities Law","volume":"42 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2006-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127657037","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Globalisation has significant effect on the way business is done in most countries. The need to compete on an international level causes companies to adjust their business practice to whatever they believe to be the most promising strategy for succeeding in a global world economy. Globalisation has not only affected the markets for goods and services, but also financial markets. Companies seek to satisfy their need for capital by marketing their securities in more than one jurisdiction. At the same time, investors seek to diversify their portfolios by buying securities in foreign companies. Financial markets have become global markets. This development is subject of an academic debate in the field of comparative law which will be analysed in this paper. One of the current discussion topics in the field is whether, with globalising economies, legal systems converge. The focus of this discussion is corporate governance. The central focus of the debate is whether the economic forces driving globalisation or other forces such as politics or culture are more influential in shaping the future of corporate law. Notwithstanding the differences in view on the influence of these respective factors, the scholarship examined in this paper views the law is as a variable that is a function of respective other non-legal driving forces and that can be changed to any desirable degree. This paper challenges this underlying assumption. It argues that legal development is not simply a function of external forces. Legal development and law reform are to a significant degree determined by the doctrinal framework that is in place in a particular legal system. To be sure, the paper does not put forward the view that the law is independent of external forces. It nevertheless argues that legal doctrine shapes the content of future legal development. The paper also argues that legal doctrine determines what type of market infrastructure emerges in a particular legal system. The thesis of this paper will be illustrated by a case study relating to the law of investment securities. The law of investment securities has been chosen for such a case study because it has, in recent years, been subject to pressure for convergence perhaps an even larger extent than the corporate governance rules. Notwithstanding this, the convergence/path dependence debate has so far neglected this branch of corporate law. This paper attempts to fill this gap. The thesis put forward in this paper will be illustrated by a case study analysing the law relating to investment securities. The findings in the case study point to a general obstacle to the convergence of laws that affects not only the law of investment securities but corporate law in general. The paper concludes that convergence is nevertheless possible but only consistently with incumbent legal doctrine. Because legal systems are restricted by legal doctrine, they can only converge on a functional level.
{"title":"Doctrinal Path Dependence and Functional Convergence: The Case of Investment Securities","authors":"Eva Micheler","doi":"10.2139/ssrn.880110","DOIUrl":"https://doi.org/10.2139/ssrn.880110","url":null,"abstract":"Globalisation has significant effect on the way business is done in most countries. The need to compete on an international level causes companies to adjust their business practice to whatever they believe to be the most promising strategy for succeeding in a global world economy. Globalisation has not only affected the markets for goods and services, but also financial markets. Companies seek to satisfy their need for capital by marketing their securities in more than one jurisdiction. At the same time, investors seek to diversify their portfolios by buying securities in foreign companies. Financial markets have become global markets. This development is subject of an academic debate in the field of comparative law which will be analysed in this paper. One of the current discussion topics in the field is whether, with globalising economies, legal systems converge. The focus of this discussion is corporate governance. The central focus of the debate is whether the economic forces driving globalisation or other forces such as politics or culture are more influential in shaping the future of corporate law. Notwithstanding the differences in view on the influence of these respective factors, the scholarship examined in this paper views the law is as a variable that is a function of respective other non-legal driving forces and that can be changed to any desirable degree. This paper challenges this underlying assumption. It argues that legal development is not simply a function of external forces. Legal development and law reform are to a significant degree determined by the doctrinal framework that is in place in a particular legal system. To be sure, the paper does not put forward the view that the law is independent of external forces. It nevertheless argues that legal doctrine shapes the content of future legal development. The paper also argues that legal doctrine determines what type of market infrastructure emerges in a particular legal system. The thesis of this paper will be illustrated by a case study relating to the law of investment securities. The law of investment securities has been chosen for such a case study because it has, in recent years, been subject to pressure for convergence perhaps an even larger extent than the corporate governance rules. Notwithstanding this, the convergence/path dependence debate has so far neglected this branch of corporate law. This paper attempts to fill this gap. The thesis put forward in this paper will be illustrated by a case study analysing the law relating to investment securities. The findings in the case study point to a general obstacle to the convergence of laws that affects not only the law of investment securities but corporate law in general. The paper concludes that convergence is nevertheless possible but only consistently with incumbent legal doctrine. Because legal systems are restricted by legal doctrine, they can only converge on a functional level.","PeriodicalId":336554,"journal":{"name":"Corporate Law: Securities Law","volume":"65 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2006-01-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121362744","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This note is designed to explain basic concepts of the economic theory of the firm to students who have no background in economics. It does not purport to cover all or even most of the scholarship in the field, nor does it aim to provide new insights into the theory of the firm. I find this note to be a useful teaching tool in introductory organizational law courses. The note is copied from: Amitai Aviram, Unincorporated Business Entities: Course Material.
{"title":"A Note on Economic Theories of the Firm","authors":"Amitai Aviram","doi":"10.2139/ssrn.880435","DOIUrl":"https://doi.org/10.2139/ssrn.880435","url":null,"abstract":"This note is designed to explain basic concepts of the economic theory of the firm to students who have no background in economics. It does not purport to cover all or even most of the scholarship in the field, nor does it aim to provide new insights into the theory of the firm. I find this note to be a useful teaching tool in introductory organizational law courses. The note is copied from: Amitai Aviram, Unincorporated Business Entities: Course Material.","PeriodicalId":336554,"journal":{"name":"Corporate Law: Securities Law","volume":"272 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2006-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131610307","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The new IFRS (International Financial Reporting Standards) acknowledge value differences in some instances but not in all cases. Moreover, for instance under regulation IAS 16, fundamental mistakes are still allowed or even prescribed, contradictory to logic. It is never correct to enter direct mutations onto the balance sheet regardless of the profit and loss account.A new equation is available within which the balance sheet, the profit and loss account, and the statement of source and use of funds remain inter-related. The apparent antithesis between nominalism and substantialism has been bridged over. The Profit Formula(R), this basic equation of profit measurement, includes each and every capital maintenance concept and does not exclude a single concept of value. According to all reasonable profit definitions, anybody can measure profit over a randomly chosen period, of any length - quickly and easily. The Profit Formula(R) is exceptionally user-friendly. Working with this profit meter is straightforward and relatively simple. Counting and calculating are reduced to an absolute minimum via a direct way to the outcome. A tremendous amount of money can be saved with regard to administration and fringe costs, including for cases of pure nominalism (measuring fiscal profit).
{"title":"New IFRS, Half-Way Up to 'The' Profit Formula(R)","authors":"Jan F. Jacobs","doi":"10.2139/SSRN.721630","DOIUrl":"https://doi.org/10.2139/SSRN.721630","url":null,"abstract":"The new IFRS (International Financial Reporting Standards) acknowledge value differences in some instances but not in all cases. Moreover, for instance under regulation IAS 16, fundamental mistakes are still allowed or even prescribed, contradictory to logic. It is never correct to enter direct mutations onto the balance sheet regardless of the profit and loss account.A new equation is available within which the balance sheet, the profit and loss account, and the statement of source and use of funds remain inter-related. The apparent antithesis between nominalism and substantialism has been bridged over. The Profit Formula(R), this basic equation of profit measurement, includes each and every capital maintenance concept and does not exclude a single concept of value. According to all reasonable profit definitions, anybody can measure profit over a randomly chosen period, of any length - quickly and easily. The Profit Formula(R) is exceptionally user-friendly. Working with this profit meter is straightforward and relatively simple. Counting and calculating are reduced to an absolute minimum via a direct way to the outcome. A tremendous amount of money can be saved with regard to administration and fringe costs, including for cases of pure nominalism (measuring fiscal profit).","PeriodicalId":336554,"journal":{"name":"Corporate Law: Securities Law","volume":"58 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2005-11-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128425959","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The SEC adopted new rules in 2005 governing registered public offerings in the United States. Few, if any, of the rules make sense if we start from a presumption that investors are rational and are able to discount properly for any information they receive during the public offering process. In this Article, I examine the new rules and assess the implicit behavioral assumptions about investors contained in the rules. I also provide an assessment of the behavioral biases that may affect regulators at the SEC. Regulator biases may lead the SEC to take an ad hoc evaluative process often ending with a reference to investor confidence in justifying new regulations. As a minimal solution, I propose that the SEC bear the burden of specifying its assumptions behind investor behavior explicitly together with how regulations will benefit investors suffering from such biases (as well as how other investors are affected by the regulations). Taking such an approach will lead to a more consistent approach in how the SEC deals with investor biases and reduce unnecessary regulation (as opposed to the SEC's present ad hoc approach as typified in the public offering rules). To the extent other more public choice factors motivate regulation and references to investor confidence are merely a pretext, my proposal would help bring transparency to these other factors by focusing attention on whether the investor confidence rationale in fact is justified.
{"title":"Behavioral Economics and the Regulation of Public Offerings","authors":"Stephen Choi","doi":"10.2139/SSRN.849585","DOIUrl":"https://doi.org/10.2139/SSRN.849585","url":null,"abstract":"The SEC adopted new rules in 2005 governing registered public offerings in the United States. Few, if any, of the rules make sense if we start from a presumption that investors are rational and are able to discount properly for any information they receive during the public offering process. In this Article, I examine the new rules and assess the implicit behavioral assumptions about investors contained in the rules. I also provide an assessment of the behavioral biases that may affect regulators at the SEC. Regulator biases may lead the SEC to take an ad hoc evaluative process often ending with a reference to investor confidence in justifying new regulations. As a minimal solution, I propose that the SEC bear the burden of specifying its assumptions behind investor behavior explicitly together with how regulations will benefit investors suffering from such biases (as well as how other investors are affected by the regulations). Taking such an approach will lead to a more consistent approach in how the SEC deals with investor biases and reduce unnecessary regulation (as opposed to the SEC's present ad hoc approach as typified in the public offering rules). To the extent other more public choice factors motivate regulation and references to investor confidence are merely a pretext, my proposal would help bring transparency to these other factors by focusing attention on whether the investor confidence rationale in fact is justified.","PeriodicalId":336554,"journal":{"name":"Corporate Law: Securities Law","volume":"56 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2005-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121856572","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper begins by examining the persistence of movements in the U.S. Government%u2019s budget posture. Deficits display considerable persistence, and debt levels (relative to GDP) even more so. Further, the degree of persistence depends on what gives rise to budget deficits in the first place. Deficits resulting from shocks to defense spending exhibit the greatest persistence and those from shocks to nondefense spending the least; deficits resulting from shocks to revenues fall in the middle. The paper next reviews recent evidence on the impact of changes in government debt levels (again, relative to GDP) on interest rates. The recent literature, focusing on expected future debt levels and expected real interest rates, indicates impacts that are large in the context of actual movements in debt levels: for example, an increase of 94 basis points due to the rise in the debt-to-GDP ratio during 1981-93, and a decline of 65 basis point due to the decline in the debt-to-GDP ratio during 1993-2001. The paper next asks why deficits would exhibit the observed negative correlation with key elements of investment. One answer, following the analysis presented earlier, is that deficits are persistent and therefore lead to changes in expected future debt levels, which in turn affect real interest rates. A different reason, however, revolves around the need for markets to absorb the increased issuance of Government securities in a setting of costly portfolio adjustment. The paper concludes with some reflections on %u201Cthe Perverse Corollary of Stein%u2019s Law%u201D: that is, the view that in the presence of large government deficits nothing need be done because something will be done.
本文首先考察了美国政府2019年预算态势的持续变化。赤字显示出相当大的持久性，债务水平(相对于GDP)更是如此。此外，持续的程度首先取决于导致预算赤字的原因。国防开支冲击导致的赤字表现出最大的持久性，而非国防开支冲击造成的赤字表现出最少的持久性;由收入冲击造成的赤字落在中间。接下来，论文回顾了最近关于政府债务水平(同样是相对于GDP)变化对利率影响的证据。最近的文献着重于预期的未来债务水平和预期的实际利率，表明在债务水平实际变动的背景下影响很大:例如，1981- 1993年期间，由于债务与国内生产总值比率的上升，增加了94个基点，1993-2001年期间由于债务与国内生产总值比率的下降，下降了65个基点。接下来，论文提出了为什么赤字会与投资的关键要素呈现出观察到的负相关。根据前面的分析，一个答案是赤字是持续存在的，因此会导致预期未来债务水平的变化，进而影响实际利率。然而，另一个不同的理由是，市场需要在代价高昂的投资组合调整的情况下吸收政府证券发行的增加。本文最后对斯坦因定律的反常推论(reverse Corollary of Stein’s Law)进行了一些反思:即认为在存在巨额政府赤字的情况下，不需要做任何事情，因为会做一些事情。
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