Public and Private Enforcement of Securities Laws: Resource-Based Evidence
Howell E. Jackson
Harvard Law School
Mark J. Roe
Harvard Law School
March 16, 2009
Journal of Financial Economics (JFE), Vol. 93, 2009
Harvard Public Law Working Paper No. 0-28
Harvard Law and Economics Discussion Paper No. 638
Ascertaining which enforcement mechanisms work to protect investors has been both a focus of recent work in academic finance and an issue for policy-making at international development agencies. According to recent academic work, private enforcement of investor protection via both disclosure and private liability rules goes hand in hand with financial market development, but public enforcement fails to correlate with financial development and, hence, is unlikely to facilitate it. Our results confirm the disclosure result but reverse the results on both liability standards and public enforcement. We use securities regulators' resources to proxy for regulatory intensity of the securities regulator. When we do, financial depth regularly, significantly, and robustly correlates with stronger public enforcement. In horse races between these resource-based measures of public enforcement intensity and the most common measures of private enforcement, public enforcement is overall as important as disclosure in explaining financial market outcomes around the world and more important than private liability rules. Hence, policymakers who reject public enforcement as useful for financial market development are ignoring the best currently-available evidence.
Number of Pages in PDF File: 55
Keywords: investor protection, public enforcement, private enforcement, securities regulation
JEL Classification: D21, G14, G18, G24, G28, G32, G34, G38, K22Accepted Paper Series
Date posted: July 11, 2007 ; Last revised: September 24, 2013
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