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Market vs. Regulatory Responses to Corporate Fraud: A Critique of the Sarbanes-Oxley Act of 2002

74 Pages Posted: 23 Oct 2002  

Larry E. Ribstein

University of Illinois College of Law (deceased); PERC - Property and Environment Research Center

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Abstract

The crashes and frauds of Enron, WorldCom and other companies have reinvigorated the debate over regulating corporate governance. Many pundits have called for corporate regulation to restore confidence in the securities markets. These recommendations appear to be supported by the fact that neither the contracting devices that were supposed to control managers, nor efficient securities markets, worked to prevent or spot the problems. Congress responded with the Sarbanes-Oxley Act of 2002. But this article shows that, given the limited effectiveness of new regulation, its potential costs, and the power of markets to self-correct, new regulation of fraud in general, and Sarbanes-Oxley in particular, is unlikely to do a better job than markets.

Keywords: Enron, securities regulation, securities fraud, Sarbanes-Oxley Act, corporate governance, corporate law

JEL Classification: K2

Suggested Citation

Ribstein, Larry E., Market vs. Regulatory Responses to Corporate Fraud: A Critique of the Sarbanes-Oxley Act of 2002. Journal of Corporation Law, Vol. 28, No. 1. Available at SSRN: https://ssrn.com/abstract=332681 or http://dx.doi.org/10.2139/ssrn.332681

Larry Edward Ribstein (Contact Author)

University of Illinois College of Law (deceased)

PERC - Property and Environment Research Center

2048 Analysis Drive
Suite A
Bozeman, MT 59718
United States

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