The impact of government regulation and self-monitoring in capital markets
Abstract
Good investor protection is of primordial importance to ensure investors are willing to invest in a company. This is important during the entire life of a firm and especially when the firm needs external funding, e.g., at incorporation or when going public. At incorporation, the legal requirements for firm entry guarantee a minimal level of investor protection. When firms go public, they should comply with the listing rules, further improving shareholder protection. Moreover, firms can also voluntarily adopt additional protection mechanisms. During the life of a firm, protection against managerial misbehavior is ensured by, e.g., giving shareholders voting rights at the annual meeting. All over the world, laws on the entry of new firms, listing rules, and voting rules, which are thus designed to guarantee investor protection, are currently under debate (e.g., debate on strict listing rules in China). As regulators today face similar problems as regulators in the past, I use history as a laboratory to investigate the impact of regulation. I go back to pre-World War II Belgium, which was at that time one of the leading economies in the world. I first examine the effect of the abolition of government permission to incorporate new firms (1873) and to go public (1867) (1). Next, I study the effect of the abolition of multiple voting shares (1934) (2). Finally, I investigate the voluntary adoption of protection mechanisms when legal investor protection was weak (3).
Funding
FWO post-doc
Researchers
- Prof. dr. Ine Paeleman (promotor)
- Prof. dr. Leentje Moortgat