The Future of Securities Regulation

Abstract

The U.S. system of security law was designed more than 70 years ago to regain investors' trust after a major financial crisis. Today we face a similar problem. But while in the 1930s the prevailing perception was that investors had been defrauded by offerings of dubious quality securities, in the new millennium, investors' perception is that they have been defrauded by managers who are not accountable to anyone. For this reason, I propose a series of reforms that center around corporate governance, while shifting the focus from the protection of unsophisticated investors in the purchasing of new securities issues to the investment in mutual funds, pension funds, and other forms of asset management.

A comparison of the stock market reactions of convertible bond offerings between financial and non-financial institutions: Do they differ?

“…Financials also tend to face stringent regulations globally (Barth, Caprio, & Levine, 2001). Regulations such as Basel I, II and III are applicable to financials over a large number of countries and there have been recent introductions and further discussions of stringent regulation since the recent financial crisis of -2009. For example, the creation of a Banking Union is under discussion across countries of European Union.…”

“…The economic regulation of banking is justified by the existence of market failure (Neal, 1997), which stems from the problem of information asymmetry and the risk of third party losses due to systematic instability (Thomson & Abbott, 2001). However, arguments suggesting as well as casting doubt on the net benefit of regulation are still in hot debate and the extant empirical evidence is largely mixed (for insightful reviews, see Healy & Palepu, 2001;Shleifer, 2005;Zingales, 2009).…”

The role of accounting in the twenty-first century firm

“…the institutional investors). Severe conflicts of interest often exist in these funds (Zingales 2009). Complex legal agreements are written to control these conflicts via the PE fund's charter and by-laws, many of which are accounting based (i.e.…”

“…Third, a myopic focus on public-market investors biases GAAP toward comparability and away from flexibility. Comparability across companies is a more useful attribute for valuation than for resolving conflicts of interests (Zingales 2009). The latter requires more flexible GAAP.…”

The Construction of a Trustworthy Investment Opportunity: Insights from the Madoff Fraud

“…Other authors have examined the determinants of trust in financial markets and have pointed both to the characteristics of the financial system and characteristics of investors as factors that explain the level of trust. At the country level, the quality of institutions, such as regulatory bodies or the courts, has an important influence on the level of investors' trust (Zingales 2009). At the individual level, Alesina and La Ferrara (2002, 231) find that trust is a function of individual characteristics (such as education, gender, or income) as well as of the characteristics of the community from which the investor comes (such as the level of income inequality).…”