Managers vs. Regulators: Post-Enron Regulation and the Great Recession

Posted: 25 Jan 2017

See all articles by Sharon Hannes

Sharon Hannes

Tel Aviv University - Buchmann Faculty of Law

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

Hannes, Sharon, Managers vs. Regulators: Post-Enron Regulation and the Great Recession (September 1, 2013). Harvard Business Law Review, Vol. 3, 2013, Available at SSRN: https://ssrn.com/abstract=2904365

Sharon Hannes (Contact Author)

Tel Aviv University - Buchmann Faculty of Law ( email )

Ramat Aviv
Tel Aviv, 69978
Israel

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