Monthly Archives: May 2007

Does Enforcement Intensity Explain Financial Development?

Classes may have ended here at Harvard, but the Law and Economics Seminar closed the Spring on a high note with a fascinating presentation by John Coffee of his new paper Law and the Market: The Impact of Enforcement.  The central thesis of the paper is that the intensity with which securities laws are enforced, rather than legal origin, explains differences in financial development across countries.

Professor Coffee’s paper contributes to a scholarly debate, now nearly a decade old, as to whether legal origin adequately explains differences in development.  The seminal paper on this subject concluded that common-law nations experienced faster growth than their civil-law counterparts, but the legal origins analysis has recently come under methodological and substantive criticism.  This paper argues that enforcement of securities law, rather than the source of the substantive law on the books, explains differences in financial development across countries.  Professor Coffee offers very persuasive evidence for that claim, although I’m less convinced that the evidence supports the policy implications offered in the piece.

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Corporate Governance, the Securities and Exchange Commission, and the Limits of Disclosure

Editor’s Note: This post is by J. Robert Brown, Jr. of the University of Denver Sturm College of Law

As the Securities and Exchange Commission prepares to hold roundtable discussions on the relationship between proxy rules and state corporation law, it might be worth considering the overall role of the Commission in the corporate governance process.  This is the subject of my recent essay, Corporate Governance, the Securities and Exchange Commission, and the Limits of Disclosure, and a topic that will be discussed at The Race to the Bottom blog.

The Commission has traditionally been viewed as responsible for disclosure, with the substance of corporate governance left to the states, as if the two were distinct.  In adopting the Exchange Act, however, Congress expected disclosure to help reduce certain abusive managerial practices, including self-perpetuation in office and excessive compensation.  (The legislative history, and especially the discussion of disclosure requirements at pages 12-14 of the House Report recommending passage of the Act, make clear that Congress expected disclosure to rein in managerial abuses.)  In other words, from the outset, Congress expected the Commission to be involved in the corporate governance process. 

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