This issue of FTG Insights examines some regulatory implications of corporate financing and payout policies. Two columns focus on new financing arrangements. “Tokenizing Platforms to Promote Competition” points out that utility tokens (often used as a financing mechanism for early-stage platforms) can serve as a valuable commitment device for a platform. If they are tradeable in a secondary market, in the long run the platform is disintermediated and a competitive price prevails for the token (and by extension for the product being traded on the platform). Thus, it can be welfare-improving to require or incentivize platforms to issue such utility tokens. “Financing the Litigation Arms Race” considers the phenomenon of external investors financing plaintiffs in civil lawsuits. Plaintiffs can now hire better lawyers, emboldening future plaintiffs. In contrast, defendants are discouraged from excessive spending. An optimal policy would encourage such external financing when the defendant has large resources but deter it when the defendant is small.

“Designing Securities for Scrutiny” focuses on the role of third-party information providers (such as credit rating agencies or equity analysts). External scrutiny serves as an important substitute for a firm signaling its quality through retention of cash flows, and hence may reduce the informativeness of security design. Stronger disclosure requirements can induce a positive feedback loop between security design by an issuer and external parties engaged in scrutiny. “Taxing Payouts not Profits: A Better Way to Raise Revenue from Corporations” argues that firms that voluntarily give money back to shareholders must be financially unconstrained. Therefore, rather than tax profits of all firms, constrained or unconstrained, it may be better to tax such payouts, so that investment by constrained firms is not distorted.