When No Law is Better than a Good Law

This 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.


Issue Date:
Jun 16 2009
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/51184
Total Pages:
66
JEL Codes:
G15; G18; K22; K42
Series Statement:
Working Paper
WP 2009-24




 Record created 2017-04-01, last modified 2017-08-22

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