The Case for Mandatory Disclosure in Securities Regulation Around the World

Abstract

The desirability of mandatory disclosure requirements in securities regulation has been the subject of a longstanding debate among corporate law scholars and economists. The debate has largely focused on the desirability of mandatory disclosure requirements in the United States, a country characterized by dispersed ownership structures. This article argues that there are strong theoretical reasons to believe that mandatory disclosure requirements can play a socially useful role in countries with concentrated ownership structures. Controlling shareholders will tend to prefer poor firm transparency, to protect their private benefits of control, even if the presence of a demanding disclosure regime would have the socially desirable effect of increasing competition in the capital and product markets and reducing the agency costs associated with concentrated ownership structures. Recent empirical work is consistent with mandatory disclosure requirements fulfilling the valuable role of enhancing competition and reducing agency costs.