Gatekeeping by Information Intermediaries of Capital Markets : the examples of Statutory Audit, Credit Rating and Financial Analysis

• Applicant: Professor Dr. Patrick C. Leyens
• Subject Area: Private Law
• Term: from 2013 to 2016
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 238421777

The research aims to identify the potential chances and risks of a regulatory strategy, which relies on the so called gatekeeping function of private information intermediaries of capital markets. So far, discussions in several disciplines have been conducted rather separately. The research will try to connect insights. The most relevant information intermediaries of capital markets are auditors, rating-agencies and financial analysts. Their information services help to overcome information asymmetries between the offer and the demand side in financial markets. A qualification in the auditor report, a rating downgrade or a financial analyst sell recommendation increase the finance costs of the issuer. This is a form of private control over the market access of an issuer (gatekeeping). Compared to financial supervisory authorities private competition between information intermediaries can rely on better information and be more cost efficient. For example, the regulatory capital of financial institutions is measured against credit ratings of the underlying debts. This is an example of an integration of private information services into financial supervision and into primarily regulatory tasks. Experiences with sudden corporate collapses and, last not least, with the recent financial market crisis let us assume that there are structural shortcomings of the gatekeeping function performed by private information intermediaries. Legal reactions so far have been rather reactive and mainly scandal driven. Research has been conducted with a main focus on single forms of information intermediation rather than on functional communalities. The proposed research shall combine the state of legal research with insights from neighbouring disciplines, especially from the perspective of interdisciplinary law and economics research. The research outcome shall contribute to a more sustainable understanding of information intermediation with a view to a more sustainable capital market regulation in the future.

• DFG Programme: Research Grants