The Role of Gatekeepers in Capital Markets

Abstract

Gatekeepers in financial markets have the power to provide the institutional stability, fortitude, and direction necessary for the development and the smooth functioning of capital markets. At the same time, they are often motivated by their own private incentives. This along with the tradeoffs they face, and the at-times unintended consequences of the regulations they propose and enforce, can undermine their effectiveness. A thorough understanding of gatekeepers and their roles can thus illuminate academics, the financial community, and regulators on how such gatekeepers can be the most effective and generate the greatest benefits for capital markets. Since gatekeeping roles and the literature they have inspired encompass a wide array of institutions and agencies, our overview concentrates on those that the conference papers appearing in this volume focus on. We conclude that collectively, the papers contribute to significant progress, and point out some crucial areas that call for further investigation and offer opportunities for future research.

The Effect of Mandatory Extraction Payment Disclosures on Corporate Payment and Investment Policies Abroad

“…11 Leuz and Wysocki [2016], Roychowdhury, Shroff, and Verdi [2019], and Roychowdhury and Srinivasan [2019] survey the empirical accounting literature on the real effects of disclosure. Kanodia [2006] and Kanodia and Sapra [2016] develop an analytical framework to study real effects of disclosure.…”

Impact of Corporate Governance on Credit Ratings: An Empirical Study in the Indian Context

“…The first one portrays the credit rating agencies as an important gatekeeper of the financial market and explains that they play a crucial role in corporate governance (Coffee, 2006; Partnoy, 2006; Roychowdhury & Srinivasan, 2019). As gatekeepers, rating agencies have a fiduciary responsibility towards the investors and help prevent any financial wrongdoings in the capital market (Coffee, 2006; Roychowdhury & Srinivasan, 2019). Further, according to Coffee (2006, p. 8), ‘Effective corporate governance requires a chain of actors: directors, managers, and gatekeepers’.…”

International Evidence on the Effects of a Local Presence by U.S. Credit Rating Agencies

“…A rating aggregates public and private information about a borrower's credit quality, and reduces the need for individual investors to conduct detailed due diligence (Badoer et al, 2019). For borrowers, a rating unlocks access to capital by facilitating public and private debt pricing and contracting (Graham and Harvey, 2001;Faulkender and Petersen, 2006;Kisgen, 2006;Partnoy, 2009;Kisgen and Strahan, 2010;Roychowdhurry and Srinivasan, 2019). Ratings also broaden a firm's investor base beyond sophisticated investors that can perform complex credit analyses (Faulkender and Petersen, 2006;Petersen, 2009;Badoer et al, 2019).…”