24.3 Part II — Law and economics perspectives on the development of systems of company and securities law

The law and economics assessment framework contains other criteria than legal dogmatic ones for assessing whether the disclosure requirements have been designed efficiently and effectively and contribute to achieving the aims of the disclosure requirements. I do, however, have some reservations as regards the law and economics perspective. It must be kept in mind that the assumption that persons act as if they are rational — the rationality assumption — has, with good reason, been criticized. The law and economics approach is moreover only one of many points of view for getting as close as possible to the truth about the complex reality.

Two economic views on the manner in which legal systems develop are the law matters' thesis and the theory of regulatory competition. In the theory of law matters', it is assumed that active securities markets will only be created in states that provide a legal system with sufficient protection for investors. The causal link assumed in the law matters' thesis must be questioned, as it is not probable that the legal protection of new investors through legislation was the condition for the creation and development of securities markets. The development of securities markets will, however, result in a demand for more regulations. The theory of regulatory competition implies that a state's legislation can be seen as a product with which states compete in attracting the businesses of listed companies and investments. In the United States, the State of Delaware is regarded as the winner of this competition. In the European Union, the aim of harmonizing company law was, for a long time, to avoid the `Delaware effect'. Under the influence of the case law of the European Court of Justice, the conditions were created for bringing about regulatory competition for re-incorporations and this competition now exists.

In the debates about regulatory competition for re-incorporations, the disclosure requirements for listed companies did not play a major part as these requirements have been harmonized to a high degree - in the European Union and designed as a uniform whole at federal level - in the United States. By way of justification of this total harmonization and federalization of the disclosure requirements, the importance is pointed out of `deep' and well-functioning securities markets. This importance also rises above the interests of individual member states. Harmonization and federalization of the disclosure requirements for listed companies result in standardization of those requirements, which increases the comparability of financial reporting.

Three possibilities are described which could bring about regulatory competition when designing the disclosure requirements for listed companies. These are `issuer choice' - freedom of choice for listed companies to determine their own relevant securities law competition between stock markets and competition between European member states. The idea of issuer choice has been heavily criticized in the literature and the influence of this theory on legislation has therefore not been noteworthy. The idea of competition between stock markets is based on the assumption that listed companies cross-list with a view to voluntarily subjecting themselves to stricter requirements. Empirical research shows, however, that the main purpose of cross-listing was to increase the number of potential investors. If competition between stock markets even exists, this will moreover not result in a race to the top when designing the disclosure requirements . The competition between the European member states is something of a paradox. On the one hand, the possibilities for competition as regards the contents of the disclosure requirements have become fewer while, on the other hand, the possibilities for relocating a company's registered office have increased. This has resulted in the pos sibility of regulatory competition. If this type of competition even exists, this does not seem to result in a race to the top either when designing the disclosure requirements.