Public Enforcement of Securities Laws: Preliminary Evidence

TL;DRAbstract

The consequence of economic actors ignoring their legal obligations, such as laws that protect outside investors in firms, is a recurring issue. Recent work in finance examines the relative importance for investor protection of private enforcement on the one hand―via disclosure and lawsuits among contracting parties―and public enforcement on the other―via financial, regulatory and even criminal rules and penalties. Much legal scholarship has seen private enforcement of securities laws as poorly designed, with firms—and hence wronged shareholders—-often bearing the cost of insiders’ errors and disclosure failure. To better investigate the importance of public and private enforcement, we here develop an enforcement variable based on the securities regulators’ staffing levels and budgets. We then examine financial outcomes around the world―such as stock market capitalization, trading volumes and number of domestic firms and IPOs―in light of these measures of public enforcement and find th

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