An Economic Analysis of Australian Damage Remedies for Misleading Prospectuses: Trade Practices Act vs. Corporations Law

Laws that address damages caused by deceptive or misleading prospectuses impact on the incentive issuers face to create such prospectuses, and hence impact on the level of investment. In Australia, it has been proposed to shift from a strict liability regime under s52 of the Trade Practices Act, to a due diligence regime under the Corporations Law. I argue that due diligence is inferior to strict liability for large firms, but in some cases may be preferred to strict liability for small firms.