Document Type

Article

Publication Date

2013

Publication Title

Boston College Law Review

Publication Title (Abbreviation)

B.C. L. Rev.

Volume

54

Issue

2

First Page

645

Last Page

710

Abstract

Paying a dividend, repurchasing shares, underpricing an initial public offering, pledging collateral, and borrowing using short-term, instead of long-term debt, are all forms of corporate communications. They are “corporate signals” that tell investors certain things about a company’s operations and current financial position, and about the managers’ confidence in its future performance. This Article provides the first comprehensive analysis of the relationship between corporate signals and securities fraud. The incentive to communicate using corporate signals has increased in recent years, a phenomenon that, I argue, is due to the grow-ing complexity of public corporations, and, importantly, to a number of changes in federal securities laws aimed at better deterring fraud and making companies more transparent. The Article makes three major contributions. First, it identifies this deep connection between the use of corporate signals (both truthful and deceptive) and recent changes in securities laws. Second, it identifies significant social costs associated with corporate signaling, which commentators and policymakers have over-looked: signals can encourage stock bubbles, create costly “signaling races,” and lead to the loss of information about companies and industries. Third, it provides a normative account of how a lawmaker could de-sign antifraud provisions under the securities laws in order to reduce total fraud, instead of simply rechanneling deceptive practices from the realm of written and oral statements to that of deceptive corporate signals.

Rights

© 2013 Manuel A. Utset

Comments

First published in Boston College Law Review.

Faculty Biography

http://www.law.fsu.edu/faculty-staff/manuel-utset-jr

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