CVM and the Judiciary: the effect of juridical uncertainty on the decision to invest in stocks and the specialized courts

Abstract

THIS PAPER INVESTIGATES THE RELATION BETWEEN REGULATORY AGENCIES, SPECIALLY THE STOCK EXCHANGE AUTHORITY (CVM), AND COURTS. IT STARTS DISCUSSING THE POSSIBLE EFFECTS OF JUDICIAL UNCERTAINTY ON THE WILL TO INVEST, MAINLY REGARDING SMALL INVESTORS THAT TEND TO AVOID BIG RISKS. IT ALSO DISCUSSES THE EFFECT OF THE CREATION OF INDEPENDENT REGULATORY AGENCIES ON JUDICIAL UNCERTAINTY. THE ARTICLE DEVELOPS A MODEL FOR CONFLICT ANALYSIS BETWEEN AGENTS (ADMINISTRATORS) AND PRINCIPALS (SMALL SHAREHOLDERS) BASED ON HAILSTORM’S AND MAILGRAM’S ONE. THE MODEL SHOWS THAT, BESIDES AFFECTING THE WILL TO INVEST, UNCERTAINTY INFLUENCES THE PERFORMANCE OF COMPANIES. IT LEADS TO THE CONCLUSION THAT THE HIGHER JUDICIAL AND REGULATORY AGENCIES UNCERTAINTY IS, THE WORST WILL THE PERFORMANCE OF ADMINISTRATORS BE. AN EMPIRICAL TEST IS DEVELOPED TO ANALYZE DECISIONS OF SPECIALIZED COURTS (CORPORATE LAW COURTS) FROM RIO DE JANEIRO. THE TEST SHOWS THAT DECISIONS OF SPECIALIZED COURTS TEND TO REFORM LESS THE DECISIONS BY CVM (12,5% TO 15% LESS, COMPARED WITH ORDINARY COURTS). THIS DATA INDICATES THAT THE EXISTENCE OF SPECIALIZED COURTS AND AGENCIES PRODUCES MORE CERTAINTY; CONSEQUENTLY, THE CREATION OF SPECIALIZED COURTS AND AGENCIES MAY INCREASE THE CONFIDENCE OF INVESTORS. THE ARTICLE ENDS PROPOSING A RESEARCH AGENDA TO DEEPEN THE STUDY OF THE RELATION BETWEEN JUSTICE, REGULATORY AUTHORITIES AND ECONOMIC DEVELOPMENT.