Regulating Conflicts of Interest: The Effect of Sanctions and Enforcement

M. Dubois (), L. Fresard and P. Dumontier
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M. Dubois: Institut d'analyse financière - UNINE - Université de Neuchâtel = University of Neuchatel, UNINE - Université de Neuchâtel = University of Neuchatel
L. Fresard: UMD - University of Maryland [College Park] - University System of Maryland
P. Dumontier: CERAG - Centre d'études et de recherches appliquées à la gestion - UPMF - Université Pierre Mendès France - Grenoble 2 - CNRS - Centre National de la Recherche Scientifique, CERAG - Centre d'études et de recherches appliquées à la gestion - UPMF - Université Pierre Mendès France - Grenoble 2 - CNRS - Centre National de la Recherche Scientifique, UGA [2016-2019] - Université Grenoble Alpes [2016-2019], CNRS - Centre National de la Recherche Scientifique

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Abstract: This article studies how legal sanctions and enforcement affect brokers' conflicts of interest emanating from investment banking activities. We exploit the recent adoption of the Market Abuse Directive (MAD) across European countries and use the variation in legal sanctions and enforcement that exists in Europe to identify brokers' reaction. Overall, the enactment of MAD significantly reduced optimistic investment advice. This reduction is larger in countries equipped with more severe legal sanctions and in countries that strongly enforce the rules. Our analysis underscores the importance of legal sanctions and enforcement power to understand the real consequences of regulatory changes.

Keywords: Governement policy and regulation; Insider trading; Event studies; Information and market efficiency; Business and securities law; Ratings and ratings agencies; Brokerage; Venture capital; Investment Banking (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (14)

Published in Review of Finance, 2014, 18 (2), pp.489-526. ⟨10.1093/rof/rft010⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-01025922

DOI: 10.1093/rof/rft010

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