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Identifier to cite or link to this item: https://hdl.handle.net/10086/13899

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Title
When No Law is Better than a Good Law
Creator
Creator Name
Bhattacharya, Utpal Bhattacharya, Utpal
Affiliation
Affiliation Name
Indiana University
Creator Name
Daouk, Hazem Daouk, Hazem
Affiliation
Affiliation Name
Cornell University
Editor
Contributor Name
Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University
JEL
G15
G18
K22
K42
Abstract
This paper argues, both theoretically and empirically, that sometimes no security law may be better than a good security law that is not enforced. The first part of the paper formalizes the sufficient conditions under which this happens for any law. The second part of the paper shows that a specific security law - the law prohibiting insider trading - may satisfy these conditions, which implies that our theory predicts that it is sometimes better not to have an insider trading law than to have an insider trading law but not enforce it. The third part of the paper takes this prediction to the data. We revisit the panel data set assembled by Bhattacharya and Daouk (2002), who showed that enforcement, not the mere existence, of insider trading laws reduced the cost of equity in a country. We find that the cost of equity actually rises when a country introduces an insider trading law, but does not enforce it.
Description
First version: June 2004
Publisher
Institute of Economic Research, Hitotsubashi University
Issued Date
2004-06
Language
English(eng)
Resource Type
technical report
Version Type
VoR
Is Part OfRelation -
Related Title
CEI Working Paper Series ; No. 2004-10
Relation
Related Identifier
URI
  http://cei.ier.hit-u.ac.jp/index.html
NCID
AA11590659
Number of Pages
36
Appears in Collections
CEI Working Paper Series
URL
https://hdl.handle.net/10086/13899