This Article advances the reopened debate over mandatory disclosure in two ways. First, it demonstrates that the proponents of issuer choice have not effectively countered the arguments that have formed the basis of the prevailing consensus for retaining mandatory disclosure. While this consensus was formed when the alternative to mandatory disclosure was total abandonment of regulation, the proponents of issuer choice have not shown how the arguments that form the basis of this consensus have any less force when applied to the new alternative of issuer choice. Nor have the proponents offered persuasive, more general rebuttals to these arguments. Second, this Article advances the affirmative case for mandatory disclosure by identifying several new and important arguments in favor of retaining the current mandatory disclosure regime.
Part I of this Article presents a theoretical analysis of the kind of disclosure regime that issuers are likely to adopt under a system of issuer choice. An issuer's managers, not its investors, will in the first instance make this choice. I show that disclosure's costs to these managers are greater than its social costs and that disclosure's benefits to them are less than its social benefits. Each issuer will accordingly choose a regime requiring significantly less disclosure than is socially optimal. Part II evaluates the existing empirical literature bearing on the question of whether the current system of mandatory disclosure enhances or diminishes social welfare. I find the results of these empirical studies to be inconclusive. I also show that the question will probably never be empirically resolved one way or the other. Highlighting this difficulty reveals how inappropriate it is for the proponents of issuer choice to try to put the empirical burden on scholars advocating retention of the current system, particularly given the strong theoretical argument that issuer choice would lead to under disclosure. Part III appraises the argument advanced by Professors Choi and Guzman that issuer choice would better accommodate differences among U.S. issuers in their optimal levels of disclosure. I find that in practice issuer choice would be unlikely to realize this hoped-for result. Part IV examines the transition costs of adopting issuer choice. Part V considers the argument that issuer choice improves capital mobility and reduces costs by permitting foreign issuers to choose their own regime when their shares are offered or traded in the U.S. market. I argue that the same advantages can be obtained with far fewer problems by maintaining the current mandatory U.S. regime but redirecting its reach so that it applies only to U.S. issuers. Part VI concludes.
Law | Securities Law
Merritt B. Fox,
Retaining Mandatory Securities Disclosure: Why Issuer Choice is Not Investor Empowerment,
Va. L. Rev.
Available at: https://scholarship.law.columbia.edu/faculty_scholarship/3513