The Inevitability of a Strong Sec

57 Pages Posted: 28 Jun 2005

See all articles by Robert A. Prentice

Robert A. Prentice

University of Texas at Austin - McCombs School of Business


There are many visions for the future of securities regulation. One prominent view features significant private contracting for disclosure and fraud protection. Another envisions regulatory competition enabling companies to choose from among a menu of regulatory regimes provided by different states, or nations, or securities exchanges competing for incorporations or listings. This article demonstrates that these two regulatory regimes rely too heavily upon the reputational constraint, which is insufficient to the task. Tenets of behavioral psychology suggest that the self-serving bias and other factors will too often cause managers to choose regulatory regimes that serve their own best interests rather than those of shareholders.

Around the globe, most developed economies have rejected private contracting and regulatory competition in favor of emulating America's current strong-SEC model. An impressive body of cross-national empirical evidence supports the viewpoint that the current strong-SEC regulatory model is significantly more effective than known alternatives at promoting capital markets. This article explains why the strong-SEC model best facilitates capital market development and economic growth.

Keywords: Securities Exchange Commission (SEC), Sarbanes-Oxley Act (SOX), regulation, securities

Suggested Citation

Prentice, Robert A., The Inevitability of a Strong Sec. Cornell Law Review, Forthcoming, McCombs Research Paper Series No. #, Available at SSRN:

Robert A. Prentice (Contact Author)

University of Texas at Austin - McCombs School of Business ( email )

Austin, TX 78712
United States

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