Finance and Financial Management Commons^™

Corporate Crime And Punishment: An Empirical Study, Dorothy S. Lund, Natasha Sarin

All Faculty Scholarship

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 enforcement agencies for failing to send guilty bankers to jail in the wake of the 2008 financial crisis; on the other, the U.S. Department of Justice has since relaxed policies that encouraged individual prosecutions and reduced the size of fines and number of prosecutions. A crucial and yet understudied …

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

All Faculty Scholarship

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 …

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

All Faculty Scholarship

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 found …

Behaviorism In Finance And Securities Law, David A. Skeel Jr.

All Faculty Scholarship

In this Essay, I take stock (as something of an outsider) of the behavioral economics movement, focusing in particular on its interaction with traditional cost-benefit analysis and its implications for agency structure. The usual strategy for such a project—a strategy that has been used by others with behavioral economics—is to marshal the existing evidence and critically assess its significance. My approach in this Essay is somewhat different. Although I describe behavioral economics and summarize the strongest criticisms of its use, the heart of the Essay is inductive, and focuses on a particular context: financial and securities regulation, as recently revamped …

Bankruptcy Phobia, David A. Skeel Jr.

All Faculty Scholarship

As the recent economic crisis has unfolded, bankruptcy has offered possible solutions at several key junctures. The first of these solutions, often referred to as mortgage modification, was geared toward homeowners who faced the loss of their homes in the months—now several years—since the start of the subprime crisis On the corporate side, Chapter 11 was an obvious alternative when large nonbank financial institutions like Bear Stearns and AIG stumbled in 2008. But regulators repeatedly balked, and the one exception to the avoidance of bankruptcy at all costs—Lehman Brothers—was anomalous. This aversion to bankruptcy, which seems to pervade all sides …