Convertible bonds were first issued in the United States in the nineteenth century. A simple convertible bond is a relatively straightforward security. It is simply a regular corporate bond, paying a fixed coupon, with security, maturing at a certain date with an additional feature allowing it to be converted into a fixed number of the issuer’s common stock. According to Calamos (2003) this convertible clause was first added to fixed income investments to increase the attractiveness of investing in rail roads of what was then the emerging economy of the United States.
Convertible bonds have grown in complexity and are now issued with features such as put options, call protection, ratchet clauses, step up coupons and floating coupons. Perhaps due to this complexity relatively few individual or institutional investors incorporate convertible into their portfolios. It has been estimated that hedge funds account for seventy percent of the demand for new convertible issues and eighty percent of convertible transactions (see Barkley (2001) and McGee (2003)).
The insurance marketplace is undergoing a transformation that may eventually lead to significant changes in how consumers purchase insurance products. A variety of distribution channels are currently used in this market place, and some insurers utilize a combination of distribution channels. These include the Internet-led channels, company-led channels, bank-led channels, and agent-led channels.
Of these distribution channels, the most discussed and anticipated channel is the Internet-led channel. The widespread diffusion of the Internet has created an explosion in the growth of electronic channels, including direct channels (that is, individual company web sites), electronic markets, or “electronic intermediaries over which multiple buyers and sellers do business” (Malone et al., 1987), and other cybermediaries (Sarkar et al., 1995). Prior to the advent of the Internet, most purchasers of insurance products used traditional agent-led distribution channels such as direct writers or independent agents. Given its reliance on traditional channels, the insurance marketplace has only recently begun to reflect this broader growth in electronic channels. The Internet was expected to have a major negative impact on the traditional agent-led distribution channel. However, consumers have not shown a marked preference for purchasing insurance product via the Internet (Trembly, 2001). Currently, less than two percent of insurance products are purchased via the Internet.
This article surveys the academic literature on the costs, benefits, and associated capital-market effects of disclosure requirements. It highlights the important interaction of disclosure requirements with other securities regulations and institutional factors within a country. Despite this focus on regulation, the article does not advocate the necessity of regulation or reforms to existing regulations in Canada. Instead, it emphasizes the tradeoffs that Canadian regulators, policy makers, and exchanges will face in evaluating potential reforms to Canadian disclosure requirements.
There are four main sections to this survey. The first section summarizes the key theoretical arguments on the costs and benefits of corporate disclosures, as well as the theory of disclosure regulation. The authors emphasize that the mere existence of benefits from corporate disclosures is not a sufficient economic justification for mandating these disclosures. The second section reviews empirical studies on firms’ disclosure choices and highlights that many studies do not directly speak to the issues and tradeoffs faced by regulators and policy makers. Moreover, the important point is made that voluntary disclosure studies cannot directly provide evidence on aggregate outcomes or the overall economic efficiency of disclosure regulation. The third section examines the market-wide effects of past regulatory events as well as studies that compare cross-sectional differences in regulations and market outcomes across countries or exchanges. These studies are reviewed in some detail because they can speak more directly to the economic consequences of disclosure regulations. The final section brings together various policy insights that can be derived from the literature.
