Corporate Governance and U.S. Capital Market Competitiveness

36 Pages Posted: 24 Oct 2010 Last revised: 28 Oct 2010

See all articles by Stephen M. Bainbridge

Stephen M. Bainbridge

University of California, Los Angeles (UCLA) - School of Law

Date Written: October 22, 2010

Abstract

This essay was prepared for a forthcoming book on the impact of law on the U.S. economy. It focuses on the impact the corporate governance regulation has had on the global competitive position of U.S. capital markets.

During the first half of the last decade, evidence accumulated that the U.S. capital markets were becoming less competitive relative to their major competitors. The evidence reviewed herein confirms that it was not corporate governance as such that was the problem, but rather corporate governance regulation. In particular, attention focused on such issues as the massive growth in corporate and securities litigation risk and the increasing complexity and cost of the U.S. regulatory scheme.

Tentative efforts towards deregulation largely fell by the wayside in the wake of the financial crisis of 2007-2008. Instead, massive new regulations came into being, especially in the Dodd Frank Act. The competitive position of U.S. capital markets, however, continues to decline.

This essay argues that litigation and regulatory reform remain essential if U.S. capital markets are to retain their leadership position. Unfortunately, the article concludes that federal corporate governance regulation follows a ratchet effect, in which the regulatory scheme becomes more complex with each financial crisis. If so, significant reform may be difficult to achieve.

Keywords: corporate governance, securities litigation, federalism, Sarbanes-Oxley

JEL Classification: K22

Suggested Citation

Bainbridge, Stephen Mark, Corporate Governance and U.S. Capital Market Competitiveness (October 22, 2010). UCLA School of Law, Law-Econ Research Paper No. 10-13, Available at SSRN: https://ssrn.com/abstract=1696303

Stephen Mark Bainbridge (Contact Author)

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