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Full-Text Articles in Business

Deploying Machine Learning For A Sustainable Future, Cary Coglianese May 2020

Deploying Machine Learning For A Sustainable Future, Cary Coglianese

Faculty Scholarship at Penn Law

To meet the environmental challenges of a warming planet and an increasingly complex, high tech economy, government must become smarter about how it makes policies and deploys its limited resources. It specifically needs to build a robust capacity to analyze large volumes of environmental and economic data by using machine-learning algorithms to improve regulatory oversight, monitoring, and decision-making. Three challenges can be expected to drive the need for algorithmic environmental governance: more problems, less funding, and growing public demands. This paper explains why algorithmic governance will prove pivotal in meeting these challenges, but it also presents four likely obstacles that ...


Commercial Law Intersections, Giuliano Castellano, Andrea Tosato Apr 2020

Commercial Law Intersections, Giuliano Castellano, Andrea Tosato

Faculty Scholarship at Penn Law

Commercial law is not a single, monolithic entity. It has grown into a dense thicket of subject-specific branches that govern a broad range of transactions and corporate actions. When one of these events falls concurrently within the purview of two or more of these commercial law branches - such as corporate law, intellectual property law, secured transactions law, conduct and prudential regulation - an overlap materializes. We refer to this legal phenomenon as a commercial law intersection (CLI). Some notable examples of transactions that feature CLIs include bank loans secured by shares, supply chain financing arrangements, patent cross-licensing, and blockchain-based initial coin ...


An Essay On Pluralism In Financial Market Infrastructure Design: The Case Of Securities Holding In The United States, Charles W. Mooney Jr. Apr 2020

An Essay On Pluralism In Financial Market Infrastructure Design: The Case Of Securities Holding In The United States, Charles W. Mooney Jr.

Faculty Scholarship at Penn Law

This essay will appear as a chapter in a forthcoming edited volume published by Oxford University Press. It builds on the earlier article, Beyond Intermediation: A New (FinTech) Model for Securities Holding Infrastructures, 22 U. Pa. J. Bus. L. 386 (2020), which argues that serious consideration should be given to modifications of the deeply intermediated securities holding systems in the United States and elsewhere. Many of the costs and risks imposed by the intermediated holding systems fall within the domain of the regulation of securities markets (internal costs), such as impairments of shareholder voting and bondholder claims against issuers. Others ...


Should Corporations Have A Purpose?, Jill E. Fisch, Steven Davidoff Solomon Mar 2020

Should Corporations Have A Purpose?, Jill E. Fisch, Steven Davidoff Solomon

Faculty Scholarship at Penn Law

The hot topic in corporate governance is the debate over corporate purpose and, in particular, whether corporations should shift their purpose from the pursuit of shareholder wealth to pursuing a broader conception of stakeholder or societal value. We argue that this debate has overlooked the critical predicate questions of whether a corporation should have a purpose at all and, if so, why,

We address these questions by examining the historical, legal and theoretical justifications for corporate purpose. We find that none of the three provides a basis for requiring a corporation to articulate a particular purpose or for a given ...


The Paradox Of Insurance, Gideon Parchomovsky, Peter Siegelman Mar 2020

The Paradox Of Insurance, Gideon Parchomovsky, Peter Siegelman

Faculty Scholarship at Penn Law

In this Article, we uncover a paradoxical phenomenon that has hitherto largely escaped the attention of legal scholars and economists, yet it has far-reaching implications for insurance law: loss-creation by uninsured parties caused by the presence of insurance. Contrary to the conventional wisdom, we show that insurance can create significant negative externalities by inducing third parties to engage in antisocial, illegal and unethical activities in order to extract money from insureds or insurers. Moreover, as the amount and scope of insurance grows, so does its distortionary effect on third parties. We term this phenomenon the paradox of insurance. The risk ...


Private Company Lies, Elizabeth Pollman Mar 2020

Private Company Lies, Elizabeth Pollman

Faculty Scholarship at Penn Law

Rule 10b-5’s antifraud catch-all is one of the most consequential pieces of American administrative law and most highly developed areas of judicially-created federal law. Although the rule broadly prohibits securities fraud in both public and private company stock, the vast majority of jurisprudence, and the voluminous academic literature that accompanies it, has developed through a public company lens.

This Article illuminates how the explosive growth of private markets has left huge portions of U.S. capital markets with relatively light securities fraud scrutiny and enforcement. Some of the largest private companies by valuation grow in an environment of extreme ...


The Cost Of Doing Business: Corporate Crime And Punishment Post-Crisis, Dorothy S. Lund, Natasha Sarin Feb 2020

The Cost Of Doing Business: Corporate Crime And Punishment Post-Crisis, Dorothy S. Lund, Natasha Sarin

Faculty Scholarship at Penn Law

For many years, law and economics scholars, as well as politicians and regulators, have debated whether corporate criminal enforcement overdeters beneficial corporate activity or in the alternative, lets corporate criminals off too easily. This debate has recently expanded in its polarization: On the one hand, academics, judges, and politicians have excoriated the DOJ for failing to send guilty bankers to jail in the wake of the financial crisis; on the other, the DOJ has since relaxed policies aimed to secure individual lability and reduced the size of fines and number of prosecutions.

A crucial and yet understudied piece of evidence ...


Private Equity Value Creation In Finance: Evidence From Life Insurance, Divya Kirti, Natasha Sarin Feb 2020

Private Equity Value Creation In Finance: Evidence From Life Insurance, Divya Kirti, Natasha Sarin

Faculty Scholarship at Penn Law

This paper studies how private equity buyouts create value in the insurance industry, where decentralized regulation creates opportunities for aggressive tax and capital management. Using novel data on 57 large private equity deals in the insurance industry, we show that buyouts create value by decreasing insurers' tax liabilities; and by reaching-for-yield: PE firms tilt their subsidiaries' bond portfolios toward junk bonds while avoiding corresponding capital charges. Previous work on affiliated or "shadow" reinsurance and capital management misses the important role that private equity buyouts play as recent drivers of these phenomenon. The trend we document is of growing importance in ...


Uncertainty > Risk: Lessons For Legal Thought From The Insurance Runoff Market, Tom Baker Feb 2020

Uncertainty > Risk: Lessons For Legal Thought From The Insurance Runoff Market, Tom Baker

Faculty Scholarship at Penn Law

Insurance ideas inform legal thought: from tort law, to health law and financial services regulation, to theories of distributive justice. Within that thought, insurance is conceived as an ideal type in which insurers distribute determinable risks through contracts that fix the parties’ obligations in advance. This ideal type has normative appeal, among other reasons because it explains how tort law might achieve in practice the objectives of tort theory. This ideal type also supports a restrictive vision of liability-based regulation that opposes expansions and supports cutbacks, on the grounds that uncertainty poses an existential threat to insurance markets.

Prior work ...


Reversing The Fortunes Of Active Funds, Adi Libson, Gideon Parchomovsky Jan 2020

Reversing The Fortunes Of Active Funds, Adi Libson, Gideon Parchomovsky

Faculty Scholarship at Penn Law

Recent years have witnessed a considerable growth of passive fund at the expense of active funds. This trend picked in 2019, a year that saw passive funds surpass active funds in terms of assets under management. The continuous decline of active funds is a cause for concern. Active funds engage in monitoring of firms and partake of decision-making in companies in their portfolio. The cost of these activities are born exclusively by active funds; the benefits, by contrast, are spread over all shareholders, including passive funds that freeride on the efforts of active funds. The contraction of active funds threatens ...


Justice Department's New Position On Patents, Standard Setting, And Injunctions, Herbert J. Hovenkamp Jan 2020

Justice Department's New Position On Patents, Standard Setting, And Injunctions, Herbert J. Hovenkamp

Faculty Scholarship at Penn Law

A deep split in American innovation policy has arisen between new economy and old economy innovation. In a recent policy statement, the Antitrust Division of the Justice Department takes a position that tilts more toward the old economy. Its December, 2019, policy statement on remedies for Standard Essential Patents issued jointly with the U.S. Patent and Trademark Office and the National Institute of Standards and Technology reflects this movement.

The policy statement as a whole contains two noteworthy problems: one is a glaring omission, and the other is a mischaracterization of the scope of antitrust liability. Both positions are ...


What’S In Your Wallet (And What Should The Law Do About It?), Natasha Sarin Jan 2020

What’S In Your Wallet (And What Should The Law Do About It?), Natasha Sarin

Faculty Scholarship at Penn Law

In traditional markets, firms can charge prices that are significantly elevated relative to their costs only if there is a market failure. However, this is not true in a two-sided market (like Amazon, Uber, and Mastercard), where firms often subsidize one side of the market and generate revenue from the other. This means consideration of one side of the market in isolation is problematic. The Court embraced this view in Ohio v. American Express, requiring that anticompetitive harm on one side of a two-sided market be weighed against benefits on the other side.

Legal scholars denounce this decision, which, practically ...


The Uncertain Stewardship Potential Of Index Funds, Jill E. Fisch Jan 2020

The Uncertain Stewardship Potential Of Index Funds, Jill E. Fisch

Faculty Scholarship at Penn Law

Regulators and commentators around the world are increasingly demanding that institutional investors engage in stewardship with respect to their portfolio companies. Further, the demand for stewardship has broadened from an expectation that investors engage to reduce agency costs and promote economic value to a call for investors to demand that companies serve a broader range of societal interests and objectives. This chapter considers calls for stewardship in the context of the U.S. capital markets specifically as applied to index funds. It argues that, irrespective of the merits of institutional stewardship generally, the structure of index funds and the business ...


Beyond Intermediation: A New (Fintech) Model For Securities Holding Infrastructures, Charles W. Mooney Jr. Jan 2020

Beyond Intermediation: A New (Fintech) Model For Securities Holding Infrastructures, Charles W. Mooney Jr.

Faculty Scholarship at Penn Law

Publicly traded securities generally are held by investors in securities accounts with intermediaries such as stockbrokers and central securities depositories—intermediated securities. For many investors this is the only practical means of holding and dealing with securities. These intermediated holding systems (IHSs) impose a variety of risks and costs. Investors are exposed to intermediary risk (default or insolvency of an intermediary holding securities) as well as impediments to the exercise of rights such as voting and asserting claims against securities issuers. The nontransparency of IHSs imposes other social costs, such as obstacles to anti-money laundering enforcement. The emergence of FinTech ...


Toward Fair And Sustainable Capitalism: A Comprehensive Proposal To Help American Workers, Restore Fair Gainsharing Between Employees And Shareholders, And Increase American Competitiveness By Reorienting Our Corporate Governance System Toward Sustainable Long-Term Growth And Encouraging Investments In America’S Future, Leo E. Strine Sep 2019

Toward Fair And Sustainable Capitalism: A Comprehensive Proposal To Help American Workers, Restore Fair Gainsharing Between Employees And Shareholders, And Increase American Competitiveness By Reorienting Our Corporate Governance System Toward Sustainable Long-Term Growth And Encouraging Investments In America’S Future, Leo E. Strine

Faculty Scholarship at Penn Law

To promote fair and sustainable capitalism and help business and labor work together to build an American economy that works for all, this paper presents a comprehensive proposal to reform the American corporate governance system by aligning the incentives of those who control large U.S. corporations with the interests of working Americans who must put their hard-earned savings in mutual funds in their 401(k) and 529 plans. The proposal would achieve this through a series of measured, coherent changes to current laws and regulations, including: requiring not just operating companies, but institutional investors, to give appropriate consideration to ...


The Reverse Agency Problem In The Age Of Compliance, Asaf Eckstein, Gideon Parchomovsky Sep 2019

The Reverse Agency Problem In The Age Of Compliance, Asaf Eckstein, Gideon Parchomovsky

Faculty Scholarship at Penn Law

The agency problem, the idea that corporate directors and officers are motivated to prioritize their self-interest over the interest of their corporation, has had long-lasting impact on corporate law theory and practice. In recent years, however, as federal agencies have stepped up enforcement efforts against corporations, a new problem that is the mirror image of the agency problem has surfaced—the reverse agency problem. The surge in criminal investigations against corporations, combined with the rising popularity of settlement mechanisms including Pretrial Diversion Agreements (PDAs), and corporate plea agreements, has led corporations to sacrifice directors and officers in order to reach ...


A Tale Of Two Markets: Regulation And Innovation In Post-Crisis Mortgage And Structured Finance Markets, William W. Bratton, Adam J. Levitin Aug 2019

A Tale Of Two Markets: Regulation And Innovation In Post-Crisis Mortgage And Structured Finance Markets, William W. Bratton, Adam J. Levitin

Faculty Scholarship at Penn Law

This Article takes the occasion of the tenth anniversary of the financial crisis to review recent developments in the structured products market, connecting the emergent pattern to post-crisis regulation.

The Article tells a tale of two markets. The financial crisis stemmed from excessive risk-taking and shabby practice in the subprime home mortgage market, a market that owed its existence to the private-label, originate to securitize model. But the pre-crisis boom in private label subprime mortgage-backed securities could never have happened absent back up financing from an array of structured products and vehicles created in the capital markets—the CDOs that ...


Redefining Leadership In The Age Of The Sdgs: Accelerating And Scaling Up Delivery Through Innovation And Inclusion, Phumzile Mlambo-Ngcuka, Rangita De Silva De Alwis Aug 2019

Redefining Leadership In The Age Of The Sdgs: Accelerating And Scaling Up Delivery Through Innovation And Inclusion, Phumzile Mlambo-Ngcuka, Rangita De Silva De Alwis

Faculty Scholarship at Penn Law

In 2015 the United Nations adopted seventeen Sustainable Development Goals (SDGs) to promote prosperity while protecting the environment. Our research examines how the SDGs, considered the grandest vision for sustainable development for the world, can be accelerated by ambitious leaders in the field of innovation. Through careful selection based on the type of industry, scale, impact, and diversity, we study a cohort of bold leaders who are shaping a brave new world. In turn, the urgent charge of the SDGs provides a platform and an innovation lab to incubate new ideas for inclusion and technologies.


Frand And Antitrust, Herbert J. Hovenkamp Aug 2019

Frand And Antitrust, Herbert J. Hovenkamp

Faculty Scholarship at Penn Law

This paper considers when a patentee’s violation of a FRAND commitment also violates the antitrust laws. It warns against two extremes. First, is thinking that any violation of a FRAND obligation is an antitrust violation as well. FRAND obligations are contractual, and most breaches of contract do not violate antitrust law. The other extreme is thinking that, because a FRAND violation is a breach of contract, it cannot also be an antitrust violation.

Every antitrust case must consider the market environment in which conduct is to be evaluated. SSOs operated by multiple firms are joint ventures. Antitrust’s role ...


Centros, California’S “Women On Boards” Statute And The Scope Of Regulatory Competition, Jill E. Fisch, Steven Davidoff Solomon May 2019

Centros, California’S “Women On Boards” Statute And The Scope Of Regulatory Competition, Jill E. Fisch, Steven Davidoff Solomon

Faculty Scholarship at Penn Law

We examine the Centros decision through the lens of SB 826 – the California statute mandating a minimum number of women on boards. SB 826, like the Centros decision, raises questions about the scope of the internal affairs doctrine and its role in encouraging regulatory competition. Despite the claim that US corporate law is characterized by regulatory competition, in the US, the internal affairs doctrine has led to less variation in corporate law than in Europe. We theorize that this is due to the shareholder primacy norm in US corporate law which results in the internal affairs doctrine focusing on matters ...


Toward A Horizontal Fiduciary Duty In Corporate Law, Asaf Eckstein, Gideon Parchomovsky May 2019

Toward A Horizontal Fiduciary Duty In Corporate Law, Asaf Eckstein, Gideon Parchomovsky

Faculty Scholarship at Penn Law

Fiduciary duty is arguably the single most important aspect of our corporate law system. It consists of two distinct sub-duties—a duty of care and a duty of loyalty—and it applies to all directors and corporate officers. Yet, under extant law, the duty only applies vertically, in the relationship between directors and corporate officers and the firm. At present, there exists no horizontal fiduciary duty: directors and corporate officers owe no fiduciary duty to each other. Consequently, if one of them fails her peers, they cannot seek direct legal recourse against her even when they stand to suffer significant ...


Making Sustainability Disclosure Sustainable, Jill E. Fisch Apr 2019

Making Sustainability Disclosure Sustainable, Jill E. Fisch

Faculty Scholarship at Penn Law

Sustainability is receiving increasing attention from issuers, investors and regulators. The desire to understand issuer sustainability practices and their relationship to economic performance has resulted in a proliferation of sustainability disclosure regimes and standards. The range of approaches to disclosure, however, limit the comparability and reliability of the information disclosed. The Securities & Exchange Commission (SEC) has solicited comment on whether to require expanded sustainability disclosures in issuer’s periodic financial reporting, and investors have communicated broad-based support for such expanded disclosures, but, to date, the SEC has not required general sustainability disclosure.

This Article argues that claims about the relationship ...


Intermediated Securities Holding Systems Revisited: A View Through The Prism Of Transparency, Thomas Keijser, Charles W. Mooney Jr. Mar 2019

Intermediated Securities Holding Systems Revisited: A View Through The Prism Of Transparency, Thomas Keijser, Charles W. Mooney Jr.

Faculty Scholarship at Penn Law

This chapter explains several benefits of adopting transparent information technology systems for intermediated securities holding infrastructures. Such transparent systems could ameliorate various prevailing problems that confront existing tiered, intermediated holding systems, including those related to corporate actions (dividends, voting), claims against issuers and upper-tier intermediaries, loss sharing and set-off in insolvency proceedings, money laundering and terrorist financing, and privacy, data protection, and confidentiality. Moreover, transparent systems could improve the functions of intermediated holding systems even without changes in laws or regulations. They also could provide a catalyst for law reform and a roadmap for substantive content of reforms. Among potential ...


The Tcja And The Questionable Incentive To Incorporate, Part 2, Michael S. Knoll Mar 2019

The Tcja And The Questionable Incentive To Incorporate, Part 2, Michael S. Knoll

Faculty Scholarship at Penn Law

The Tax Cuts and Jobs Act (TCJA) has put the question should a business be organized as a passthrough entity or as a corporation at center stage. The TCJA eliminated much of the tax disadvantage from using the corporate form, but did Congress go so far that it advantaged corporations relative to pass-through entities? Some prominent commentators say yes. They argue that the federal income tax now encourages individual owners of pass-through businesses to restructure their business as subchapter C corporations, and they predict that the TCJA will lead to a cascade of incorporations. The principal driver of the shift ...


The Tcja And The Questionable Incentive To Incorporate, Michael S. Knoll Mar 2019

The Tcja And The Questionable Incentive To Incorporate, Michael S. Knoll

Faculty Scholarship at Penn Law

The Tax Cuts and Jobs Act (TCJA) has put the question should a business be organized as a passthrough entity or as a corporation at center stage. The TCJA eliminated much of the tax disadvantage from using the corporate form, but did Congress go so far that it advantaged corporations relative to pass-through entities? Some prominent commentators say yes. They argue that the federal income tax now encourages individual owners of pass-through businesses to restructure their business as subchapter C corporations, and they predict that the TCJA will lead to a cascade of incorporations. The principal driver of the shift ...


Shareholder Collaboration, Jill E. Fisch, Simone M. Sepe Mar 2019

Shareholder Collaboration, Jill E. Fisch, Simone M. Sepe

Faculty Scholarship at Penn Law

Two models dominate the debate on the theory of the firm. Under the management-power model, decision-making power exclusively belongs to corporate insiders (officers and directors). The competing shareholder-power model contemplates increasing shareholder power to limit managerial authority. Both models are focused on managerial agency costs and address the appropriate allocation of power between insiders and shareholders to minimize these costs. Both models also assume that insiders and shareholders are engaged in a competitive struggle for corporate power.

Corporate practice has moved on, however. Increasingly, the insider-shareholder dynamic is collaborative, not competitive. This Article traces the development of insider-shareholder collaboration and ...


Defined Contribution Plans And The Challenge Of Financial Illiteracy, Jill E. Fisch, Annamaria Lusardi, Andrea Hasler Feb 2019

Defined Contribution Plans And The Challenge Of Financial Illiteracy, Jill E. Fisch, Annamaria Lusardi, Andrea Hasler

Faculty Scholarship at Penn Law

Retirement investing in the United States has changed dramatically. The classic defined-benefit (DB) plan has largely been replaced by the defined contribution (DC) plan. With the latter, individual employees’ decisions about how much to save for retirement and how to invest those savings determine the benefits available upon retirement.

We analyze data from the 2015 National Financial Capability Study to show that people whose only exposure to investment decisions is by virtue of their participation in an employer-sponsored 401(k) plan are poorly equipped to make sound investment decisions. Specifically, they suffer from higher levels of financial illiteracy than other ...


Lowering Legal Barriers To Rpki Adoption, Christopher S. Yoo, David A. Wishnick Jan 2019

Lowering Legal Barriers To Rpki Adoption, Christopher S. Yoo, David A. Wishnick

Faculty Scholarship at Penn Law

Across the Internet, mistaken and malicious routing announcements impose significant costs on users and network operators. To make routing announcements more reliable and secure, Internet coordination bodies have encouraged network operators to adopt the Resource Public Key Infrastructure (“RPKI”) framework. Despite this encouragement, RPKI’s adoption rates are low, especially in North America.

This report presents the results of a year-long investigation into the hypothesis—widespread within the network operator community—that legal issues pose barriers to RPKI adoption and are one cause of the disparities between North America and other regions of the world. On the basis of interviews ...


Applying Sentinel Event Reviews To Policing, John Hollway, Ben Grunwald Jan 2019

Applying Sentinel Event Reviews To Policing, John Hollway, Ben Grunwald

Faculty Scholarship at Penn Law

A sentinel event review (SER) is a system-based, multistakeholder review of an organizational error. The goal of an SER is to prevent similar errors from recurring in the future rather than identifying and punishing the responsible parties. In this article, we provide a detailed description of one of the first SERs conducted in an American police department—the review of the Lex Street Massacre investigation and prosecution, which resulted in the wrongful incarceration of four innocent men for 18 months. The results of the review suggest that SERs may help identify new systemic reforms for participating police departments and other ...


Global Standards For Securities Holding Infrastructures: A Soft Law/Fintech Model For Reform, Charles W. Mooney Jr. Jan 2019

Global Standards For Securities Holding Infrastructures: A Soft Law/Fintech Model For Reform, Charles W. Mooney Jr.

Faculty Scholarship at Penn Law

Intermediaries such as stockbrokers and banks are ubiquitous in global securities markets, playing essential roles in markets, including trading, settling trades, and post-settlement holding of securities. This essay focuses in particular on the roles of intermediaries in securities holding systems. It proposes an IOSCO-led “soft-law-to-hard-law” approach to the development of Global Standards for reforms to these holding systems. States would be expected to adopt “hard law” reforms through statutory and regulatory adjustments to securities holding systems. The reforms would embrace not only important standards of a functional and regulatory nature, but also holistic standards relating to the private law, insolvency ...