How the Quest for Efficiency Undermined the Market
Posted: 24 Jul 2003
The roots of recent American stock market and corporate governance failures are traced to regulatory changes that were intended to reduce the cost of financial information and increase market liquidity. In a textbook instance of the law of unintended consequences, policymakers' attempts to improve America's financial markets weakened the institutions that protect investors from abuse. Many of the current reforms, while well intended, do not attack the root causes of the problems. We argue that radical reform is needed.
Keywords: Corporate Governance, Financial Markets, Intermediaries, Capital Markets
JEL Classification: G34, G10, G18, L10, M41, N21
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