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Using Stock Price Information to Regulate Firms

Author

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  • Antoine Faure-Grimaud

Abstract

This paper examines the role of the information contained in stock prices in the regulation of privatized firms. Stock prices contain noisy but unbiased information about firm's future prospects that regulators can use to decide on some regulatory policies. The main argument developed is that the observation of stock price movements reduces the incentives of regulators to develop their own monitoring technologies and can allow them to commit to relatively lighthanded regulations. This protects firm's investments in cost reduction activities and can increase ex ante welfare. Copyright 2002, Wiley-Blackwell.

Suggested Citation

  • Antoine Faure-Grimaud, 2002. "Using Stock Price Information to Regulate Firms," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(1), pages 169-190.
    • Handle: RePEc:oup:restud:v:69:y:2002:i:1:p:169-190
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    File URL: http://hdl.handle.net/10.1111/1467-937X.00202
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    Cited by:

    1. Antoine Faure-Grimaud & Jean-Jacques Laffont & David Martimort, 2003. "Collusion, Delegation and Supervision with Soft Information," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(2), pages 253-279.
    2. Evans, Joanne & Levine, Paul & Trillas, Francesc, 2008. "Lobbies, delegation and the under-investment problem in regulation," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 17-40, January.
    3. Graeme Guthrie, 2006. "Regulating Infrastructure: The Impact on Risk and Investment," Journal of Economic Literature, American Economic Association, vol. 44(4), pages 925-972, December.
    4. Laura Valderrama, 2010. "Privatization Under Regulatory Lobbying," NCID Working Papers 04/2010, Navarra Center for International Development, University of Navarra.
    5. Avdjiev, Stefan & Bogdanova, Bilyana & Bolton, Patrick & Jiang, Wei & Kartasheva, Anastasia, 2020. "CoCo issuance and bank fragility," Journal of Financial Economics, Elsevier, vol. 138(3), pages 593-613.
    6. Philip Bond & Alex Edmans & Itay Goldstein, 2012. "The Real Effects of Financial Markets," Annual Review of Financial Economics, Annual Reviews, vol. 4(1), pages 339-360, October.
    7. Itay Goldstein & Philip Bond, 2012. "Government intervention and information aggregation by prices," 2012 Meeting Papers 225, Society for Economic Dynamics.
    8. Guthrie, Graeme, 2006. "Regulating Infrastructure: The Impact on Risk and Investment," Working Paper Series 18946, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    9. Martimort, David & Straub, Stéphane, 2009. "Infrastructure privatization and changes in corruption patterns: The roots of public discontent," Journal of Development Economics, Elsevier, vol. 90(1), pages 69-84, September.
    10. Kakhkharov, Jakhongir & Bianchi, Robert J., 2022. "COVID-19 and policy responses: Early evidence in banks and FinTech stocks," Pacific-Basin Finance Journal, Elsevier, vol. 74(C).
    11. Jean Tirole, 2012. "Overcoming Adverse Selection: How Public Intervention Can Restore Market Functioning," American Economic Review, American Economic Association, vol. 102(1), pages 29-59, February.
    12. Felix Höffler & Sebastian Kranz, 2015. "Using Forward Contracts to Reduce Regulatory Capture," Journal of Industrial Economics, Wiley Blackwell, vol. 63(4), pages 598-624, December.
    13. repec:vuw:vuwscr:18946 is not listed on IDEAS
    14. A. R. Kemal, 2002. "Regulatory Framework in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 41(4), pages 319-332.
    15. Philip Bond & Itay Goldstein & Edward Simpson Prescott, 2006. "Market-based regulation and the informational content of prices," Working Paper 06-12, Federal Reserve Bank of Richmond.
    16. Itay Goldstein, 2023. "Information in Financial Markets and Its Real Effects," Review of Finance, European Finance Association, vol. 27(1), pages 1-32.
    17. Soukopová, Jana & Vaceková, Gabriela & Klimovský, Daniel, 2017. "Local waste management in the Czech Republic: Limits and merits of public-private partnership and contracting out," Utilities Policy, Elsevier, vol. 48(C), pages 201-209.

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