Dismantling Financial Disclosure Regulations: Testing the Stigler‐Benston Hypothesis

Abstract

State regulation of capital markets in the US and the UK climaxed soon after World War II. Thereafter, this “contested terrain” has been the site of a series of intense conflicts and struggles over the form and extent of regulation. Leading academic protagonists include George Benston and the Nobel Laureate George Stigler; both provided an intellectual spur for dismantling the apparatus regulating national capital markets. In essence, these theorists support market processes and oppose using the state′s bureaucracy as a means of regulation. Surveys literature that critically appraises Benston and Stigler′s work and provides an empirical test of a number of hypotheses derivative of their work. Using evidence from court filings and other sources previously unexamined in the accounting literature, reveals significantly high levels of security law violations among firms currently exempt from the Securities and Exchange Commission (SEC) filing requirements – particularly where there is high information asymmetry between stockholders and management and where management are subject to profit pressures. Concludes that, in circumstances where Stigler and Benston′s assumptions fail to hold, market processes are ineffective in preventing securities law violations.