Managers vs. Regulators: Post-Enron Regulation and the Great Recession
Posted: 25 Jan 2017
Date Written: September 1, 2013
Abstract
Combating managerial opportunism is a difficult task. Managers do not tend to sit idle when facing a regulatory attempt to restrict their activities. They often seek ways to circumvent the regulation or new, alternative avenues for enriching themselves. This Article uncovers one recent and pervasive form of this phenomenon. Specifically, I show how managers tend to take excessive risks in response to regulation that hinders stock price manipulation, stock option backdating or repricing and a variety of additional ill-conceived schemes. This novel theoretical argument is particularly pertinent in the wake of the recent financial crisis in the American market. Indeed, the lesson for regulators should be that any reform that improves disclosure and prevents managerial rent-seeking must also curb risk-taking tendencies.
Keywords: Managerial Power, Risk Taking, Regulation, Backdating
JEL Classification: G30, G32, G38
Suggested Citation: Suggested Citation