When No Law is Better than a Good Law

Posted: 8 Dec 2009

See all articles by Utpal Bhattacharya

Utpal Bhattacharya

HKUST Business School

Hazem Daouk

Cornell University - School of Applied Economics and Management

Multiple version iconThere are 3 versions of this paper

Date Written: October 2009

Abstract

This paper argues, both theoretically and empirically, that sometimes no securities law may be better than a good securities law that is not enforced. The first part of the paper formalizes the sufficient conditions under which this happens for any law. The second part of the paper shows that a specific securities law - the law prohibiting insider trading - may satisfy these conditions. The third part of the paper takes this prediction to the data. We find that the cost of equity actually rises when some countries enact an insider trading law, but do not enforce it.

JEL Classification: G15, G18, K22, K42

Suggested Citation

Bhattacharya, Utpal and Daouk, Hazem, When No Law is Better than a Good Law (October 2009). Review of Finance, Vol. 13, Issue 4, pp. 577-627, 2009, Available at SSRN: https://ssrn.com/abstract=1520346 or http://dx.doi.org/rfp011

Utpal Bhattacharya (Contact Author)

HKUST Business School ( email )

Clear Water Bay
Kowloon
Hong Kong

Hazem Daouk

Cornell University - School of Applied Economics and Management ( email )

446 Warren Hall
Ithaca, NY 14853
United States
331-45-78-63-88 (Fax)

HOME PAGE: http://courses.cit.cornell.edu/hd35/

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