Firms Gone Dark

University of Chicago Law Review, Vol. 76, pp. 135-160 (2009)

UC Berkeley Public Law Research Paper No. 1300751

26 Pages Posted: 14 Nov 2008 Last revised: 26 Apr 2013

Jesse M. Fried

Harvard Law School; European Corporate Governance Institute (ECGI)

Date Written: January 8, 2009

Abstract

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.

Keywords: securities regulation, mandatory disclosure, going dark, agency costs

JEL Classification: G18, G32, G34, G38, K22

Suggested Citation

Fried, Jesse M., Firms Gone Dark (January 8, 2009). University of Chicago Law Review, Vol. 76, pp. 135-160 (2009); UC Berkeley Public Law Research Paper No. 1300751. Available at SSRN: https://ssrn.com/abstract=1300751

Jesse M. Fried (Contact Author)

Harvard Law School ( email )

1575 Massachusetts
Griswold Hall 506
Cambridge, MA 02138
United States
617-384-8158 (Phone)

HOME PAGE: http://www.law.harvard.edu/faculty/directory/10289/Fried

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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