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.
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Bibliographic InfoPaper provided by Cornell University, Department of Applied Economics and Management in its series Working Papers with number 51184.
Date of creation: 16 Jun 2009
Date of revision:
insider trading; cost of capital; emerging markets; securities law; enforcement; International Development; G15; G18; K22; K42;
Other versions of this item:
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-07-11 (All new papers)
- NEP-CFN-2009-07-11 (Corporate Finance)
- NEP-LAW-2009-07-11 (Law & Economics)
- NEP-REG-2009-07-11 (Regulation)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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