Abstract

http://ssrn.com/abstract=1089069
 
 

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Vicarious Liability for Bad Corporate Governance: Are We Wrong About 10b-5?


James C. Spindler


University of Texas School of Law; McCombs School of Business, University of Texas at Austin

April 16, 2008

USC CLEO Research Paper No. C08-3
21st Australasian Finance and Banking Conference 2008 Paper
American Law and Economics Review, Forthcoming

Abstract:     
I formulate a rational expectations signaling model of vicarious liability for securities fraud, particularly the much-criticized "fraud on the market" private class action arising under Rule 10b-5. I show that fraudulent misreporting by managers occurs in the absence of managerial moral hazard -- i.e., where managers simply maximize shareholder payoffs -- and that vicarious liability can serve as an appropriate deterrent, creating separating equilibrium. I then show that the particular remedy under Rule 10b-5 can perfectly deter fraud and perfectly compensate purchasers, and that Rule 10b-5 class actions may function better than critics claim.

Number of Pages in PDF File: 42

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Date posted: February 4, 2008 ; Last revised: November 16, 2013

Suggested Citation

Spindler, James C., Vicarious Liability for Bad Corporate Governance: Are We Wrong About 10b-5? (April 16, 2008). USC CLEO Research Paper No. C08-3; 21st Australasian Finance and Banking Conference 2008 Paper; American Law and Economics Review, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1089069 or http://dx.doi.org/10.2139/ssrn.1089069

Contact Information

USC Law RPS Submitter (Contact Author)
USC Gould School of Law ( email )
699 Exposition Boulevard
Los Angeles, CA 90089
United States
213-740-2551 (Phone)
213-740-5502 (Fax)

James C. Spindler
University of Texas School of Law ( email )
727 East Dean Keeton Street
Austin, TX 78705
United States

McCombs School of Business, University of Texas at Austin ( email )
Austin, TX 78712
United States
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