Strong Financial Laws Without Strong Enforcement: Is Good Law Always Better than No Law?
University of New South Wales - Australian School of Business; Financial Research Network (FIRN)
Journal of Empirical Legal Studies, 2013, Vol. 10, No. 2, pp. 288-324
UNSW Australian School of Business Research Paper No. 2012 BFIN 02
This paper examines whether strong laws are effective when regulatory institutions are weak. This has become especially relevant due to criticisms of financial market regulation in the US. I test the impact of imposing strong laws on a weak regulatory environment by using China’s principled reforms to market manipulation law as a natural experiment. The results from difference in difference tests suggest that China’s principled law reforms did not improve the market’s information environment, as proxied by the level of informed trade and information asymmetry. This implies that principled law reform is ineffective if the regulatory environment is weak.
Number of Pages in PDF File: 54
Keywords: Regulation, Law Reform, Securities Law, Adverse Selection, Informed Trade, China, Securities Litigation
JEL Classification: G14, G18, H11, K22, K42working papers series
Date posted: February 12, 2012 ; Last revised: April 22, 2013
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