Beyond Liability: Rewarding Effective Gatekeepers
Lawrence A. Cunningham
George Washington University
Minnesota Law Review, Vol. 92, 2007
GWU Legal Studies Research Paper No. 359
GWU Law School Public Law Research Paper No. 359
This Article adds to the emerging literature on rewards to promote effective capital market gatekeeping. Capital market gatekeeping theory traditionally relies heavily on threats of legal liability for failure to perform legally mandated functions (along with a presumed constraint imposed by reputation effects). The ineffectiveness of many gatekeepers in the past decade revealed limitations of the liability strategy and yet reforms continue to emphasize legal duties and liability for gatekeepers. This emphasis also has the negative side-effect of discouraging gatekeepers from willingness to perform desired functions - such as to detect for fraud. Using rewards can induce gatekeepers to perform desired functions and add positive incentives to encourage them to be more effective in vetting enterprises seeking access to capital.
Number of Pages in PDF File: 54
Keywords: gatekeepers, auditors, lawyers, incentive compensation, reputation, liability
JEL Classification: G20, G28, G30, K00, K10, K20, K22, K40, L20, L13
Date posted: October 18, 2007
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