Law, corporate governance and efficiency of the financial markets

In efficient capital markets, the classical economic theory holds that investors serve as regulator by sanctioning problems of corporate governance with reduced security prices. In recent years, Canadian Securities Administrators ( hereinafter "CSA") have adopted various measures to improve corporate governance in Canada, based on the informational efficiency of financial markets. This text explores the main measures that have been implemented and explains some relations between these measures and economic theory. First, it presents some basic economic considerations on the capital market's informational efficiency and its effects on corporate governance. Then, it studies different corporate governance measures taken by CSA. At the one hand, these measures increase the continuous disclosure obligations by including elements on the corporate governance structure. On the other hand, new rules have been implemented to improve the quality and reliability of accounting information. The CSA's regulatory approach is discussed in the light of theoretical limits underlying the capital market's efficiency hypothesis. This text highlights particular limitations concerning corporate governance disclosures and rationality of investors who are responsible of sanctioning deficiencies in corporate governance.