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Conflicts of Interest and Market Discipline Among Financial Service Firms

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  • Walter, Ingo

Abstract

Very recent reports on Maxwell Communications Corporation and Enron clearly underlined a single important weakness in the behaviour of corporations and financial markets -- the exploitation of conflicts of interest. Although potential conflicts of interest are a fact of life among financial firms, they can only come to flower when competition is not perfect and when markets are not fully transparent. Since underlying market imperfections are systematic even in highly developed financial systems, causing agency problems, it is essential that the problem of conflict-of-interest exploitation is addressed through improved transparency and market discipline if public confidence in financial markets is not to be repeatedly shaken. This paper explores conflicts of interest in wholesale and retail financial markets, and in financial firms. It reviews existing regulatory measures and rating agencies as well as internal controls, and recommends strengthening of measures to prevent conflict exploitation.

Suggested Citation

  • Walter, Ingo, 2004. "Conflicts of Interest and Market Discipline Among Financial Service Firms," European Management Journal, Elsevier, vol. 22(4), pages 361-376, August.
    • Handle: RePEc:eee:eurman:v:22:y:2004:i:4:p:361-376
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    Citations

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    Cited by:

    1. Reurink, Arjan, 2016. "Financial fraud: A literature review," MPIfG Discussion Paper 16/5, Max Planck Institute for the Study of Societies.
    2. Grote, Michael H. & Täube, Florian A., 2007. "When outsourcing is not an option: International relocation of investment bank research -- Or isn't it?," Journal of International Management, Elsevier, vol. 13(1), pages 57-77, March.
    3. De Manuel, Mirzha & Valiante, Diego, 2014. "A Life Cycle Approach to Investor Protection," ECMI Papers 9619, Centre for European Policy Studies.
    4. Daniela Venanzi, 2021. "Large Is Riskier: The Case of European Commercial Banks," International Journal of Business and Management, Canadian Center of Science and Education, vol. 16(1), pages 1-19, August.
    5. Tajudeen Olalekan Yusuf, 2011. "Brokers' incentives and conflicts of interest in the control of opportunism," Journal of Risk Finance, Emerald Group Publishing, vol. 12(3), pages 168-181, May.
    6. Carmen Pilar Martí Ballester, 2020. "Does Concurrent Management of Mutual Funds and Pension Plans Create Conflicts of Interest?," Ensayos de Economía 18307, Universidad Nacional de Colombia Sede Medellín.
    7. Daniela Venanzi, 2019. "Da che dipende il rischio delle banche? Il beta fondamentale delle banche europee (What does banks' riskiness depend on? The fundamental beta of Europe's banks)," Moneta e Credito, Economia civile, vol. 72(286), pages 105-131.

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