Robert A. Prentice

Whither Securities Regulation? Some Behavioral Observations regarding Proposals for Its Future

Respected commentators have floated several proposals for startling reforms of America’s seventy-year-old securities regulation scheme. Many involve substantial deregulation with a view toward allowing issuers and investors to contract privately for desired levels of disclosure and fraud protection. The behavioral literature explored in this Article cautions that in a deregulated securities world it is exceedingly optimistic to expect issuers voluntarily to disclose optimal levels of information, securities intermediaries such as stock exchanges and stockbrokers to appropriately consider the interests of investors, or investors to be able to bargain efficiently for fraud protection.

Law and Corporate Finance

In this thorough and enlightening book, the authors examine the role of law in developing the large financial markets necessary for national economic success. They discuss the basic foundational law of contracts, property and tort, corporate law, and securities law, providing both a broad theoretical and empirical case for its value in financial markets.

Ethical Decision Making: More Needed Than Good Intentions

The flourishing field of behavioral finance indicates that people often do not engage in optimal decision making when investing. The same cognitive biases and mental heuristics that cause suboptimal investing may also cause people to make unethical decisions. For that reason, good intentions are necessary, but they are not sufficient for finance professionals who desire to act ethically. Insights presented in this article can assist the wellintentioned to do the right thing in difficult circumstances.

Economies, Capital Markets, and Securities Law

The debate over Sarbanes-Oxleys specific provisions has already given rise to attempts by proponents of private ordering to revisit the wisdom of American-style, comprehensive securities regulation. This article explains the economic rationale that underlies the SECs program of mandatory disclosure and comprehensive anti-fraud regulation. It then surveys an impressive body of empirical evidence that has generally been ignored by the SECs critics. That evidence makes a very strong case for stringent SEC regulation by showing how it facilitates the development of the capital markets that are so necessary to economic development and growth. Finally, this article contributes its own empirical study that further bolsters the case for comprehensive securities regulation. Whatever the specific failings of Sarbanes-Oxley, it should not provide the occasion for any serious deregulation of American securities markets.