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
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: Suggested Citation