Steven N. Kaplan is the Neubauer Family Professor of Entrepreneurship and Finance at the University of Chicago Booth School of Business. This post is based on his piece, originally published in ProMarket. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum here); For Whom Corporate Leaders Bargain by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here); and Toward Fair and Sustainable Capitalism by Leo E. Strine, Jr (discussed on the Forum here).
Milton Friedman wrote his famous piece about corporate social responsibility 50 years ago. The wisdom of the piece has been influential, productive, and remains true today.
It is important to understand what Friedman actually said and meant: “There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud.” I interpret “profits” to mean long-term shareholder value, which is the value of the company. That captures the fact that total shareholder value can increase if a company takes actions that reduce profits in the short-term, but increase them by more in the medium and longer-term. That is surely what Friedman meant.
SEC’s Proposed Reporting Threshold for Institutional Investment Managers
More from: Daniel Taylor, Mary Barth, Travis Dyer, Wayne Landsman
Daniel Taylor is associate professor of accounting at the Wharton School of the University of Pennsylvania. This post is based on a comment letter to the U.S. Securities and Exchange Commission by Mr. Taylor; Mary Barth, the Joan E. Horngren Professor of Accounting, Emerita, at Stanford Graduate School of Business; Travis Dyer, assistant professor of accounting at Cornell University SC Johnson College of Business; and Wayne Landsman, KPMG Distinguished Professor of Accounting at the University of North Carolina Kenan-Flagler Business School. Related research from the Program on Corporate Governance includes The Law and Economics of Blockholder Disclosure by Lucian Bebchuk and Robert J. Jackson Jr. (discussed on the Forum here).
We appreciate the opportunity to comment on the Securities and Exchange Commission’s (the “Commission”) proposed Reporting Threshold for Institutional Investment Managers. Herein we provide comments and analysis relating primarily to the Request for Comments in Sections II.D III.B of the proposed rule (“Proposal”).
Part I of this letter provides comment on the central premise of the Proposal. The Commission estimates that the Proposal would exempt 89% of institutional investors from filing Form 13F (“affected filers”) and provide an average annual cost savings of approximately $21,000 per affected filer. These cost savings are economically small in that they amount to 0.004% (0.008%) of assets under management for the average (median) affected filer, and 0.02% of assets for the smallest filer. This small cost savings needs to be weighed against the potentially large costs to investors and others created by eliminating a public disclosure that they heavily use.
Part II of this letter comments on various aspects of Section II of the Proposal, “Discussion and Economic Analysis.” We believe the analysis in Section II is incomplete for two reasons. First, the Proposal does not contain any formal economic analysis, and does not attempt to quantify either the extent of use of Form 13F or the benefits that it provides to investors and other stakeholders. To help fill this void, we analyze the usage patterns of the EDGAR system, and specifically the frequency of Form 13F downloads from EDGAR.
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