FIN-03-032 |
NYU Stern School of Business |
October 2003
Ingo Walter
ABSTRACT
There has been substantial public and regulatory attention of
late to apparent exploitation of conflicts of interest involving
financial services firms based on financial market imperfections
and asymmetric information. This paper proposes a workable taxonomy
of conflicts of interest in financial services firms, and links it
to the nature and scope of activities conducted by such firms,
including possible compounding of interest-conflicts in
multifunctional client relationships. It lays out the conditions
that either encourage or constrain exploitation of conflicts of
interest, focusing in particular on the role of information
asymmetries and market discipline, including the shareholder-impact
of litigation and regulatory initiatives. External regulation and
market discipline are viewed as both complements and substitutes -
market discipline can leverage the impact of external regulatory
sanctions, while improving its granularity though detailed
management initiatives applied under threat of market discipline.
At the same time, market discipline may help obviate the need for
some types of external control of conflict of interest exploitation.
Ingo Walter
Institution: Stern School of Business, New York University
Phone: (212) 998-0707
Fax: (212) 995-4221
Email: iwalter@stern.nyu.edu
Home Page: http://www.stern.nyu.edu/~iwalter
To download a copy of this paper click here
To request a copy of this paper click here
|