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Using Stock Price Information to Regulate Firms

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  • Faure-Grimaud, Antoine
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    Abstract

    This paper examines the role of the information contained in stock prices in the regulation of privatized firms. Stock prices contain noisy but unbiased information about firm's future prospects that regulators can use to decide on some regulatory policies. The main argument developed is that the observation of stock price movements reduces the incentives of regulators to develop their own monitoring technologies and can allow them to commit to relatively light-handed regulations. This protects firm's investments in cost reduction activities and can increase ex ante welfare. Copyright 2002 by The Review of Economic Studies Limited

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Review of Economic Studies.

    Volume (Year): 69 (2002)
    Issue (Month): 1 (January)
    Pages: 169-90

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    Handle: RePEc:bla:restud:v:69:y:2002:i:1:p:169-90

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    Web page: http://www.blackwellpublishing.com/journal.asp?ref=0034-6527

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    Cited by:
    1. Philip Bond & Itay Goldstein & Edward S. Prescott, 2006. "Market-based regulation and the informational content of prices," Working Paper 06-12, Federal Reserve Bank of Richmond.
    2. Itay Goldstein & Philip Bond, 2012. "Government intervention and information aggregation by prices," 2012 Meeting Papers 225, Society for Economic Dynamics.
    3. Höffler, Felix & Kranz, Sebastian, 2010. "Using Forward Contracts to Reduce Regulatory Capture," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 320, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    4. Evans, Joanne & Levine, Paul & Trillas, Francesc, 2008. "Lobbies, delegation and the under-investment problem in regulation," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 17-40, January.
    5. Antoine Faure-Grimaud & Jean-Jacques Laffont & David Martimort, 2003. "Collusion, Delegation and Supervision with Soft Information," Review of Economic Studies, Wiley Blackwell, vol. 70(2), pages 253-279, 04.
    6. Graeme Guthrie, 2006. "Regulating Infrastructure: The Impact on Risk and Investment," Journal of Economic Literature, American Economic Association, vol. 44(4), pages 925-972, December.
    7. A. R. Kemal, 2002. "Regulatory Framework in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 41(4), pages 319-332.
    8. Martimort, David & Straub, Stéphane, 2009. "Infrastructure privatization and changes in corruption patterns: The roots of public discontent," Journal of Development Economics, Elsevier, vol. 90(1), pages 69-84, September.
    9. Jean Tirole, 2012. "Overcoming Adverse Selection: How Public Intervention Can Restore Market Functioning," American Economic Review, American Economic Association, vol. 102(1), pages 29-59, February.

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