How the Quest for Efficiency Undermined the Market

Posted: 24 Jul 2003

See all articles by Krishna Palepu

Krishna Palepu

Harvard University - Harvard Business School; Harvard University - David Rockefeller Center for Latin American Research; Harvard Business Review; NBER; International Academy of Management

Paul M. Healy

Harvard Business School; National Bureau of Economic Research (NBER)

Abstract

The roots of recent American stock market and corporate governance failures are traced to regulatory changes that were intended to reduce the cost of financial information and increase market liquidity. In a textbook instance of the law of unintended consequences, policymakers' attempts to improve America's financial markets weakened the institutions that protect investors from abuse. Many of the current reforms, while well intended, do not attack the root causes of the problems. We argue that radical reform is needed.

Keywords: Corporate Governance, Financial Markets, Intermediaries, Capital Markets

JEL Classification: G34, G10, G18, L10, M41, N21

Suggested Citation

Palepu, Krishna and Healy, Paul M., How the Quest for Efficiency Undermined the Market. Harvard NOM Working Paper No. 03-39, Available at SSRN: https://ssrn.com/abstract=422524

Krishna Palepu (Contact Author)

Harvard University - Harvard Business School ( email )

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Paul M. Healy

Harvard Business School ( email )

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National Bureau of Economic Research (NBER)

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