The Efficacy of Regulation Fair Disclosure

This paper examines the impact of Securities and Exchange Commission's Regulation Fair Disclosure (FD) on information leakage around voluntary management disclosures. We find a positive correlation between stock returns two days before and after the voluntary disclosure in the pre‐Regulation FD period, but not in the post‐Regulation FD period. After Regulation FD is implemented, pre‐announcement abnormal return as a percentage of total return decreases by 26.1% (21.4%) for large firms with good (bad) news, suggesting that the amount of information leakage reduces for these firms. These findings provide support for the premise and the intended purpose of the regulation for large firms.     

Hedge Fund Regulation and Misreported Returns

This paper introduces a cross‐country law and finance analysis of the misreporting behaviour in the hedge fund industry in terms of smoothing returns so that a fund consistently generates positive returns. We find strong evidence that international differences in hedge fund regulation are significantly associated with the propensity of fund managers to misreport monthly returns. We find a positive association between wrappers and misreporting, particularly for funds that do not have a lockup provision. Also, we find some evidence that misreporting is less common among funds in jurisdictions with minimum capitalisation requirements and restrictions on the location of key service providers. We assess the robustness of our finds to a number of specifications, including, different specifications of misreporting bin widths, subsets of the data by fund type, as well as specifications controlling for collinearity and selection effects and other robustness checks. We show misreporting significantly affects capital allocation, and calculate the wealth transfer effects of misreporting and relate this wealth transfer to differences in hedge fund regulation.     

Risk Shifting through Nonfinancial Contracts: Effects on Loan Spreads and Capital Structure of Project Finance Deals

We study capital structure negotiation and cost of debt financing between sponsors and lenders using a sample of more than 1,000 project finance loans worth around US$195 billion closed between 1998 and 2003. We find that lenders: (i) rely on the network of nonfinancial contracts as a mechanism to control agency costs and project risks, (ii) are reluctant to price credit more cheaply if sponsors are involved as project counterparties in the relevant contracts, and finally (iii) do not appreciate sponsor involvement as a contractual counterparty of the special purpose vehicle when determining the level of leverage.     

What determines the composition of banks’ loan portfolios? Evidence from transition countries

This paper explores how bank characteristics and the institutional environment influence the composition of banks’ loan portfolios. We use a new and unique data set based on the EBRD Banking Environment and Performance Survey (BEPS), which was conducted for 220 banks in 20 transition countries. We show that bank ownership, bank size, and legal creditor protection are important determinants of the composition of banks’ loan portfolios. In particular, we find that foreign banks play an active role in mortgage lending. Moreover, banks that perceive pledge and mortgage laws to be of high quality choose to focus more on mortgage lending.     

When are outside directors effective?

This paper uses recent regulations that have required some companies to increase the number of outside directors on their boards to generate estimates of the effect of board independence on performance that are largely free from endogeneity problems. Our main finding is that the effectiveness of outside directors depends on the cost of acquiring information about the firm: when the cost of acquiring information is low, performance increases when outsiders are added to the board, and when the cost of information is high, performance worsens when outsiders are added to the board. The estimates provide some of the cleanest estimates to date that board independence matters, and the finding that board effectiveness depends on information cost supports a nascent theoretical literature emphasizing information asymmetry. We also find that firms compose their boards as if they understand that outsider effectiveness varies with information costs.     

Escape from New York: The market impact of loosening disclosure requirements

We examine the first significant deregulation of U.S. disclosure requirements since the passage of the 1933/1934 Exchange and Securities Acts: the 2007 Securities and Exchange Commission (SEC) Rule 12h-6. Rule 12h-6 has made it easier for foreign firms to deregister with the SEC and thereby terminate their U.S. disclosure obligations. We show that the market reacted negatively to the announcement by the SEC that firms from countries with weak disclosure and governance regimes could more easily opt out of the stringent U.S. reporting and legal environment. We also find that since the rule's passage, an unprecedented number of firms have deregistered, and these firms often had been previous targets of U.S. class action securities lawsuits or SEC enforcement actions. Our findings suggest that shareholders of non-U.S firms place significant value on U.S. securities regulations, especially when the home country investor protections are weak.     

Antitrust economic analysis in food marketing channels: a global perspective

Antitrust enforcement concerning monopolies, mergers, and cartels is converging across all market‐oriented economies in the world. This convergence is based upon neoclassical economic analysis of industrial organization. The role of empirical economic analysis, however, has not converged as rapidly as the conceptual model because different countries have different enforcement institutions and strategies. This article explains how antitrust enforcement has evolved over time from public agencies to a market for enforcement that admits private parties. Private party law suits, and especially class action law suits on behalf of groups such as farmers and consumers, is a mechanism for redressing the often superior legal and economic resources that defendant corporations have and public agencies do not have. Enforcement and the role of empirical analysis are compared in the United States and other countries. Examples of enforcement from different countries illustrate the strengths and weaknesses of different approaches. Finally, some insights explain how economists function in enforcement and the attributes required for success.     

The Effects of Multiple Health and Nutrition Labels on Consumer Food Choices

Consumers face an increasing availability of information on health and nutritional aspects of foods, especially on food package labels. Previous research has identified that this information is positively valued, but the effect of presenting several items of information simultaneously is not well understood. We conduct a choice experiment to identify the effects of multiple health and nutrition information labels for two products representing a healthy and less healthy food choice. Although our consumers attach positive utility to most of the individual labels evaluated here, the simultaneous presence of more than one label only has positive impact on utility in one of nine possible cases. Therefore, promotion of multiple labels should not be considered beneficial a priori either from a regulatory or business perspective. In addition, results show that consumers show a higher willingness to pay for nutrition and health labels for less healthy products.     

Private enforcement,corruption, and antitrust design

We examine how the rationale for enabling versus precluding private antitrust enforcement depends on whether antitrust enforcement is corruption-free or plagued by corruption. Corruption in courts affects the incentives to bring forth private antitrust lawsuits. This, in turn, along with corruption in antitrust agency enforcement, alters the incentives to commit antitrust violations. The social welfare effect of enabling private antitrust enforcement in the presence of corruption depends on whether corrupt officials in the ensuing bribery contests favor a particular firm and if so which one and to what extent. Under some circumstances, corruption actually increases the social desirability of private antitrust enforcement relative to the no-corruption scenario. Our analysis highlights that the effects of a given legal arrangement for antitrust enforcement critically depend on the corruption environment and, thus, that the appropriate design of antitrust institutions is context-specific.     

The Demand for Healthcare Regulation: The Effect of Political Spending on Occupational Licensing Laws

Using data on political spending in state elections, this study considers the role of political contributions by healthcare professional interest groups in states' decisions to enact occupational licensing laws. These laws govern how different professions may operate in healthcare markets, and while they ostensibly exist to protect consumers, licensing laws can also insulate professionals from competition in healthcare markets. Higher political spending by physician interest groups increases the probability that a state maintains licensing laws restricting the practices of nurse practitioners (NPs) and physician assistants (PAs). Conversely, increased spending by hospital interest groups increases the probability that a state allows NPs and PAs to practice with more autonomy. Nurse groups, which include groups affiliated with NPs, have a smaller effect on licensing laws. And nonphysician groups, which include groups affiliated with PAs, have almost no effect on licensing laws. These results are consistent with the investment theory of political spending.