Chapter 3: Integrity and Innovation in the Public Capital Markets: A Survey of the Securities Law Literature
James C. Spindler 3.1 INTRODUCTION: COMPELLING INFORMATION, OR PERMITTING INNOVATION? In this chapter, I survey the academic securities law literature that bears on innovation and economic growth. As it turns out, such a task is somewhat difficult because the securities literature usually does not discuss innovation and societal welfare in explicit terms. Rather, because securities law is concerned with information and the functioning of the capital markets, there is a tendency to focus on two proxies for economic efficiency that are direct functions of the informational environment: liquidity and price accuracy.1 More and better information tends to promote both liquidity and price accuracy, which often (though not always, as I will discuss) will in turn promote socially optimal economic production. More liquidity and greater price accuracy can imply a lower cost of capital for entrepreneurs, more efficient capital allocation, easier monitoring of managers, and other benefits, all of which lead to a greater degree of production, innovation, and economic growth. Thus, while the ultimate concern of the securities law ought to be the effect of the laws upon the real economy, for tractability’s sake this is usually couched in terms of liquidity and price accuracy. There is thus a substantial branch of securities law literature that explores how securities law provides the benefits of liquidity and price accuracy, and how best to maintain the requisite informationally-rich environment. This literature places a great emphasis on disclosing as much 1 Liquidity, as used in this chapter, is the ease with which a...
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