European Financial Integration: A Framework for Policy Analysis
In this paper, we investigate the design and implementation of financial regulation where market failures are created by asymmetric information between investors and firms. We argue that reputation, while providing some correction for imperfect information, should be supplemented by financial regulation. We focus on two regulatory tools: direct penalties and capital requirements (where capital includes all assets that can be appropriated by the regulators and those whose value is extinguished in case of revealed misconduct). We find that capital requirements have an advantage over penalties when there is a relation between firms' quality and their capital. Capital requirements will, however, be more onerous where there is a close relation between capital and quality and when there is less precision in imposing penalties.Next, we analyse whether self-regulatory organizations have adequate incentives to implement regulation. We find that such incentives do exist when firms have sufficient capital at stake, for example in the form of industry-specific assets, and where the benefits from cheating are limited.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
|Date of creation:||Jul 1990|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:429. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.