The Advantage of Competitive Federalism for Securities Regulation

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AEI Press, 2002 - Business & Economics - 301 pages
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In this analysis of securities regulation, the author demonstrates that the current approach toward U.S. regulation - exclusive jurisdiction of the Securities and Exchange Commission - is misguided and should be revamped by implementing a regime of competitive federalism. Under such a system firms would select their regulator from among the states, the SEC, or other nations. The author asserts that competitive federalism harnesses the high-powered incentives of markets to the regulatory state to produce regulatory arrangements most compatible with investors' preferences. The author contends that the empirical evidence does not indicate that the SEC is effective in achieving its stated objectives. The commission's expansions of disclosure requirements over the years have not significantly enhanced investors' wealth. In addition, she asserts, evidence from institutional equity and debt markets and cross-country listing practices demonstrates that firms voluntarily disclose substantial information beyond mandatory requirements to provide the information investors demand. The author concludes that under competitive federalism, the aspects of the SEC's regime that are valuable to investors will be retained, those that are not will be discarded, and the resulting securities regime will better meet investors' needs than the present one.

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Rationales for Securities Regulation the Effectiveness
State Competition for Corporate Charters
Implementing Competitive Federalism for Securities

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About the author (2002)

Romano is the Allen Duffy/Class of 1960 Professor of Law at the Yale Law School. She is a fellow of the American Academy of Arts and Sciences and a research associate of the National Bureau for Economic Research. She was President of the American Law and Economics Association in 1998-99 and co-editor of the Journal of Law, Economics, and Organization from 1988-1992.

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