Firms Gone Dark
Jesse M. Fried
Harvard Law School; European Corporate Governance Institute (ECGI)
January 8, 2009
University of Chicago Law Review, Vol. 76, pp. 135-160 (2009)
UC Berkeley Public Law Research Paper No. 1300751
The securities laws currently permit certain firms to exit the mandatory disclosure system even though their shares are held by hundreds (or even thousands) of investors and continue to be publicly traded. Such exiting firms are said to "go dark" because they subsequently provide little information to public investors. This paper addresses the going-dark phenomenon and its implications for the debate over mandatory disclosure. Mandatory disclosure's critics contend that insiders of publicly traded firms will always voluntarily provide adequate information to investors. The disclosure choices of gone-dark firms raise doubts about this claim. The paper also puts forward a new approach to regulating going-dark firms: giving public shareholders a veto right over exits from mandatory disclosure. Such an approach, it shows, will prevent undesirable exits from mandatory disclosure while preserving firms' ability to engage in value-increasing exits.
Number of Pages in PDF File: 26
Keywords: securities regulation, mandatory disclosure, going dark, agency costs
JEL Classification: G18, G32, G34, G38, K22Accepted Paper Series
Date posted: November 14, 2008 ; Last revised: April 26, 2013
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