Working Paper: CEPR ID: DP7110
Authors: Luigi Zingales
Abstract: The U.S. system of security law was designed more than 70 years ago to regain investors? trust after a major financial crisis. Today we face a similar problem. But while in the 1930s the prevailing perception was that investors had been defrauded by offerings of dubious quality securities, in the new millennium, investors? perception is that they have been defrauded by managers who are not accountable to anyone. For this reason, I propose a series of reforms that center around corporate governance, while shifting the focus from the protection of unsophisticated investors in the purchasing of new securities issues to the investment in mutual funds, pension funds, and other forms of asset management.
Keywords: Corporate Governance; Securities Regulation
JEL Codes: G18; G38; K22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| corporate governance reforms (G38) | improved investor trust (G24) |
| lack of accountability among corporate managers (G34) | fundamental trust problem in securities markets (G10) |
| empowering institutional investors to nominate directors (G34) | improved accountability (H83) |
| improved accountability (H83) | improved investor trust (G24) |
| enhanced disclosure requirements for brokers and investment products (G24) | protection for unsophisticated investors (G18) |
| protection for unsophisticated investors (G18) | reduction of risk of fraud (G38) |
| reducing the regulatory gap between public and private markets (G18) | more equitable investment environment (G19) |
| regulatory changes (G18) | more stable financial system (P34) |