When No Law is Better Than a Good Law
AbstractThis paper argues, both theoretically and empirically, that sometimes no securities law may be better than a good securities law that is not enforced. The first part of the paper formalizes the sufficient conditions under which this happens for any law. The second part of the paper shows that a specific securities law -- the law prohibiting insider trading -- may satisfy these conditions. The third part of the paper takes this prediction to the data. We find that the cost of equity actually rises when some countries enact an insider trading law, but do not enforce it. Copyright 2009, Oxford University Press.
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Bibliographic InfoArticle provided by European Finance Association in its journal Review of Finance.
Volume (Year): 13 (2009)
Issue (Month): 4 ()
Other versions of this item:
- Bhattacharya, Utpal & Daouk, Hazem, 2009. "When No Law is Better than a Good Law," Working Papers 51184, Cornell University, Department of Applied Economics and Management.
- Bhattacharya, Utpal & Daouk, Hazem, 2004. "When No Law is Better than a Good Law," CEI Working Paper Series 2004-10, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
- K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
- K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
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