Enforcement and its Impact on Cost of Equity and Liquidity of the Market

28 Pages Posted: 21 Dec 2006 Last revised: 12 May 2014

Date Written: May 1, 2006

Abstract

Theory suggests that enforcement of securities laws is important. If securities laws are not enforced, outside investors will doubt whether they will get their money back with a fair return. So outside investors will not give their money to firms (this leads to low liquidity in capital markets) or, if they give money to firms, they will demand a higher return (this leads to a higher cost of equity). There is little literature documenting the importance of enforcing securities laws. On December 8, 2005, I was asked by the Task Force to Modernize Securities Legislation in Canada to survey the little literature that exists, and prepare a report titled "Enforcement and Its Impact on Cost of Equity and Liquidity of the Market". This paper is that report.

Keywords: enforcement, securities laws, corporate governance, insider trading

JEL Classification: K22, F37, G14, G18, G28, G38

Suggested Citation

Bhattacharya, Utpal, Enforcement and its Impact on Cost of Equity and Liquidity of the Market (May 1, 2006). Available at SSRN: https://ssrn.com/abstract=952698 or http://dx.doi.org/10.2139/ssrn.952698

Utpal Bhattacharya (Contact Author)

HKUST Business School ( email )

Clear Water Bay
Kowloon
Hong Kong

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