Document Type
Article
Publication Date
2026
Abstract
A privately-informed entrepreneur may withhold material information from prospective investors who may sue the firm ex post for (alleged) non-disclosure. Absent liability, the entrepreneur has an excessive incentive to withhold bad news and pursue socially-wasteful projects. Liability deters inefficient non- disclosure and prevents capital misallocation. Any damage award received by investors is partially offset by a reduction in equity value. Depending on the likelihood of court error and litigation cost, the socially-optimal damage award may be either zero or the minimum necessary for full deterrence. The private incentive to waive liability may be socially excessive or insufficient. Positive and normative implications are discussed.
Recommended Citation
Choi, Albert H. and Kathryn E. Spier. "Liability for Non-Disclosure in IPOs." Journal of Law, Economics, and Organization 42, no. 1 (2026): 281-318. DOI: https://doi.org/10.1093/jleo/ewae029
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Accounting Law Commons, Banking and Finance Law Commons, Contracts Commons, Law and Economics Commons, Public Law and Legal Theory Commons, Securities Law Commons
Comments
This is a pre-copyedited, author-produced version of an article accepted for publication in The Journal of Law, Economics, and Organization following peer review. The version of record Albert H Choi, Kathryn E Spier, Liability for non-disclosure in IPOs, The Journal of Law, Economics, and Organization, Volume 42, Issue 1, March 2026, Pages 281–318, is available online at: https://doi.org/10.1093/jleo/ewae029