Regulatory Transparency and the Alignment of Private and Public Enforcement
67 Pages Posted: 3 Sep 2020 Last revised: 15 May 2021
Date Written: May 15, 2021
We propose and find that enhanced regulatory transparency facilitates alignment between private and public enforcement. Utilizing the SEC’s 2004 decision to publicly disclose its comment letters, we explore the actions of a public enforcer (the SEC) and a private enforcer (shareholder litigants). The two parties’ enforcement targets are more aligned in the post-public-disclosure period. The increased alignment is attributable to two channels. First, SEC’s actions are subject to greater public scrutiny, enhancing regulator incentives and reducing regulatory capture. Second, shareholder plaintiffs gain information previously accessible only by regulators, enabling litigants to identify cases with “merit,” reducing nuisance suits and earning larger settlements.
Keywords: Regulation, SEC, securities litigation, class action lawsuit, regulatory transparency
JEL Classification: G18, G38, K41, K42, L51, M40, M41, M48
Suggested Citation: Suggested Citation