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University of Southern California Legal Studies Working Paper Series

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Measuring Regulation: A Labor Task-Based Approach, Michael Simkovic, Miao Ben Zhang Aug 2019

Measuring Regulation: A Labor Task-Based Approach, Michael Simkovic, Miao Ben Zhang

University of Southern California Legal Studies Working Paper Series

This paper uses occupational employment and wage data for over 270 industries from 1990 to 2017 to estimate the percentage of an industry's annual labor spending on performing regulation-related tasks. We hypothesize that this measure reflects the intensity of regulations that incentivize firm spending on compliance to avoid legal liability or regulatory sanctions. We study the sensitivity of this measure to shocks that change regulatory intensity in the finance and energy sectors. Compared to supply-side measures that count words in regulations, our response-based measure, Regulation Index, reflects broader sources of regulation, can better detect the impact of regulations, and ...


Toward A Mission Statement For Mutual Funds In Shareholder Litigation, Sean J. Griffith, Dorothy S. Lund Aug 2019

Toward A Mission Statement For Mutual Funds In Shareholder Litigation, Sean J. Griffith, Dorothy S. Lund

University of Southern California Legal Studies Working Paper Series

This paper analyzes the conduct of mutual funds in shareholder litigation. We begin by reviewing the basic forms of shareholder litigation and the benefits such claims might offer mutual fund investors. We then investigate, though an in-depth docket review, whether and how the ten largest mutual funds participate in shareholder litigation. We find that although shareholder suits offer potential benefits, the largest mutual funds have essentially forfeited their use of litigation. This finding is particularly striking given that index funds and other long-term oriented mutual funds generally cannot sell their shares when they are dissatisfied with company performance, leaving them ...


Taking Control Rights Seriously, Robert Rasmussen Sep 2018

Taking Control Rights Seriously, Robert Rasmussen

University of Southern California Legal Studies Working Paper Series

It is common to observe that investors receive both cash flow rights and control rights against a borrower. The crucial differences between these two “rights” is rarely focused on. Cash flow rights are rights in that they are legal entitlements. Outside of bankruptcy, failure to pay entitles a lender to resort to a legal remedy against the borrower. Inside of bankruptcy, the Bankruptcy Code structures the way in which these legal entitlements will be adjusted. Control rights are different. They do not confer direct power over the business, nor do they provide lenders with a judicial remedy that allows them ...


The Certification Paradox, Jonathan M. Barnett Jul 2018

The Certification Paradox, Jonathan M. Barnett

University of Southern California Legal Studies Working Paper Series

It is commonly observed that certification intermediaries mitigate informational asymmetries by “lending” reputational capital to support transacting parties’ quality commitments. However, this proposition is challenged by cases in which well-established intermediaries have failed to detect fraud, misrepresentation and other misbehavior. The “certification paradox” provides a more nuanced account that anticipates both the general success, and periodic failure, of certification intermediaries. Transacting parties minimize search and evaluation costs by using a small number of certification intermediaries with large stocks of reputational capital. Incumbent certifiers are substantially protected by entrants’ high costs of accumulating sufficient reputational capital and users’ high costs of ...


Limited Liability And The Known Unknown, Michael Simkovic Feb 2018

Limited Liability And The Known Unknown, Michael Simkovic

University of Southern California Legal Studies Working Paper Series

Limited liability is a double-edged sword. On the one hand, limited liability may help overcome investors’ risk aversion and facilitate capital formation and economic growth. On the other hand, limited liability is widely believed to contribute to excessive risk taking and externalization of losses to the public. The externalization problem can be mitigated imperfectly through existing mechanisms such as regulation, mandatory insurance, and minimum capital requirements. These mechanisms could be more effective if information asymmetries between industry and policymakers could be reduced. Private businesses will typically have better information about industry-specific risks than policymakers.

A charge for limited liability entities ...


Governmental Intervention In An Economic Crisis, Robert Rasmussen, David A. Skeel Jr. Nov 2016

Governmental Intervention In An Economic Crisis, Robert Rasmussen, David A. Skeel Jr.

University of Southern California Legal Studies Working Paper Series

This paper articulates a framework both for assessing the various government bailouts that took place at the onset of Great Recession and for guiding future rescue efforts when they become necessary. The goals for those engineering a bailout should be to be as transparent as possible, to articulate clearly the reason for the intervention, to respect existing priorities among investors, to exercise control only at the top level where such efforts can be seen by the public, and to exit as soon as possible. By these metrics, some of the recent bailouts should be applauded, while others fell short. We ...


The Trojan Horse Of Corporate Integration, Edward D. Kleinbard Aug 2016

The Trojan Horse Of Corporate Integration, Edward D. Kleinbard

University of Southern California Legal Studies Working Paper Series

The U.S. Senate Finance Committee has invested significant resources, including hearings and staff reports, to make the case for an unusual form of corporate dividend integration – a corporate dividends-paid deduction, combined with a universal shareholder dividend withholding tax collected from the firm. This proposal would not reduce the cash tax outlays of U.S. corporations in respect of distributed or retained earnings. It would not reduce the aggregate tax burdens imposed on most shareholders, and in many plausible circumstances would raise those tax costs. It is a poorly targeted response to design weaknesses in the U.S. international corporate ...


"The End Of Bankruptcy" Revisited, Robert Rasmussen Aug 2016

"The End Of Bankruptcy" Revisited, Robert Rasmussen

University of Southern California Legal Studies Working Paper Series

The End of Bankruptcy, published in 2002, set forth a view of corporate bankruptcy based on a theory of the firm. It argued that, for a traditional Chapter 11 proceeding to be necessary, it had to be the case that a firm had going concern surplus, that the firm’s investors cannot realign the capital structure through normal bargaining, and that a going-concern sale is not possible. Changes outside of bankruptcy had made each of these necessary preconditions less common. This chapter revisits this work, and shows that, despite the upheaval of the Great Recession, it remains the case that ...


It's Tax Not Trade (Stupid), Edward J. Mccaffery Jul 2016

It's Tax Not Trade (Stupid), Edward J. Mccaffery

University of Southern California Legal Studies Working Paper Series

Globalization, trade and other free market policies increase wealth. But the gains from trade are not being evenly spread among all citizens. People and politicians rage against foreigners. But it is the United States tax system, not trade, that ought to change, and wealthy Americans, not workers world-wide, who should be sharing the wealth. A nd it is the form of tax, not just its rate structure, that must reform, so that capital at last bears a meaningful share of the burden.


Revisiting Labor Mobility In Innovation Markets, Jonathan M. Barnett, Ted M. Sichelman May 2016

Revisiting Labor Mobility In Innovation Markets, Jonathan M. Barnett, Ted M. Sichelman

University of Southern California Legal Studies Working Paper Series

It is now widely asserted that legal regimes that enforce contractual and other limitations on labor mobility deter technological innovation. First, recent empirical studies purport to show relationships between bans on enforcing noncompete agreements, increased employee movement, and increased innovation. We find that these studies misconstrue legal differences across states and otherwise are flawed, incomplete, or limited in applicability. Second, scholars have largely adopted the view that California’s policy against noncompetes promoted Silicon Valley as the world’s leading technology center. By contrast, Massachusetts’ enforcement of noncompetes purportedly stunted innovation in the Route 128 region near Boston. We show ...


The Host's Dilemma: Strategic Forfeiture In Platform Markets For Informational Goods, Jonathan M. Barnett Jan 2016

The Host's Dilemma: Strategic Forfeiture In Platform Markets For Informational Goods, Jonathan M. Barnett

University of Southern California Legal Studies Working Paper Series

Voluntary forfeiture of intellectual assets — often, exceptionally valuable assets — is surprisingly widespread in information technology markets. A simple economic rationale can account for these practices. By giving away access to core technologies, a platform holder commits against expropriating (and thereby induces) user investments that support platform value. To generate revenues that cover development and maintenance costs, the platform holder must regulate access to other goods and services within the total consumption bundle. The trade-off between forfeiting access (to induce adoption) and regulating access (to recover costs) anticipates the substantial convergence of open and closed innovation models. Organizational patterns in certain ...


Opportunistic Proposals By Union Shareholders, John G. Matsusaka, Oguzhan Ozbas, Irene Yi Oct 2015

Opportunistic Proposals By Union Shareholders, John G. Matsusaka, Oguzhan Ozbas, Irene Yi

University of Southern California Legal Studies Working Paper Series

Effective corporate governance requires mechanisms that allow shareholders to influence corporate decisions. This paper investigates the use of shareholder proposals, an increasingly prominent governance mechanism, by labor unions. Activist union pension funds are subject to cross-pressures: they wish to increase fund returns to help beneficiaries but also to aid current union workers. We show theoretically that shareholder proposals can be used as bargaining chips in contract negotiations. Empirically, we use variation in the expiration of collective bargaining agreements to identify exogenous changes in the value of making proposals. We find that during contract negotiation years, unions increase the number of ...


Why Corporate Tax Reform Can Happen, Edward D. Kleinbard Sep 2015

Why Corporate Tax Reform Can Happen, Edward D. Kleinbard

University of Southern California Legal Studies Working Paper Series

This brief essay explains what the stakes are for corporate tax reform and why such reform is more politically feasible than most observers believe. The largest conceptual impediments to corporate tax reform are international tax design and the fact that a large fraction of U.S. business income is earned by unincorporated businesses. In response, the essay demonstrates that a framework has emerged with respect to the former that can serve as the basis for constructive negotiations. The essay further lays out a novel strategy for dealing with unincorporated businesses in corporate tax reform, which is to construct a corporate ...


"Competitiveness" Has Nothing To Do With It, Edward D. Kleinbard Sep 2014

"Competitiveness" Has Nothing To Do With It, Edward D. Kleinbard

University of Southern California Legal Studies Working Paper Series

The recent wave of corporate tax inversions has triggered interest in what motivates these tax-driven transactions now. Corporate executives have argued that inversions are explained by an “anti-competitive” U.S. tax environment, as evidenced by the federal corporate tax statutory rate, which is high by international standards, and by its “worldwide” tax base. This paper explains why this competitiveness narrative is largely fact-free, in part by using one recent articulation of that narrative (by Emerson Electric Co.’s former vice-chairman) as a case study.

The recent surge in interest in inversion transactions is explained primarily by U.S. based multinational ...


More Than A Woman: Insights Into Corporate Governance After The French Sex Quota, Darren Rosenblum, Daria Roithmayr Aug 2014

More Than A Woman: Insights Into Corporate Governance After The French Sex Quota, Darren Rosenblum, Daria Roithmayr

University of Southern California Legal Studies Working Paper Series

In 2011, France enacted a Corporate Board Quota to establish a forty percent floor for either sex on corporate boards. Existing literature presumes that women will change the way firms function and that their presence in upper management will improve both governance and financial returns. To assess the potential impact of the quota, we interviewed twenty-four current and former corporate board members. Our analysis of these interviews generates two findings. First our results indicate that, at least in the view of board members, the sex quota has had an impact on the process of board decision making, but adding women ...


The Effect Of Forced Refocusing On The Value Of Diversified Firms, John G. Matsusaka, Yongxiang Wong Apr 2014

The Effect Of Forced Refocusing On The Value Of Diversified Firms, John G. Matsusaka, Yongxiang Wong

University of Southern California Legal Studies Working Paper Series

This paper studies how investors responded when Chinese regulators required a group of large, publicly traded companies to divest their non-core hotel and real estate assets in 2010. The quasi-experiment allows direct estimates of the effect of diversification on value that are free from common selection problems in the literature. On average, stock prices rose 1 to 2 percent in response to forced refocusing, suggesting that corporate diversification was a value-destroying strategy for those firms. The implied “excess value/diversification discount” has at best a weak connection to the announcement return. The abnormal return was most positive for companies in ...


A Difficult Conversation: Corporate Directors On Race And Gender, Kimberly D. Krawiec, John M. Conley, Lissa L. Broome Mar 2014

A Difficult Conversation: Corporate Directors On Race And Gender, Kimberly D. Krawiec, John M. Conley, Lissa L. Broome

University of Southern California Legal Studies Working Paper Series

This symposium essay summarizes our ongoing ethnographic research on corporate board diversity.This research is based on fifty-seven interviews with corporate directors and a limited number of other persons of interest (including institutional investors, executive search professionals, and proxy advisors) regarding their views on race and gender diversity in the boardroom.

Using a method rooted in anthropology and discourse analysis, we have worked from a general topic outline and conducted open-ended interviews in which respondents are encouraged to raise and develop issues of interest to them. The interviews range from forty-five minutes to two hours in length and each interview ...


Brief Of Public Knowledge: Alice Corporation Pty. Ltd. V. Cls Bank International And Cls Services Ltd., Jack Lerner, Charles Duan Mar 2014

Brief Of Public Knowledge: Alice Corporation Pty. Ltd. V. Cls Bank International And Cls Services Ltd., Jack Lerner, Charles Duan

University of Southern California Legal Studies Working Paper Series

This is the Brief of Public Knowledge and the Application Developers Alliance as Amici Curiae in Support of Respondents.


Stateless Income And Its Remedies, Edward D. Kleinbard Mar 2014

Stateless Income And Its Remedies, Edward D. Kleinbard

University of Southern California Legal Studies Working Paper Series

This outline presentation (I) quickly reviews the current status of business tax reform efforts in the United States, with particular attention to the international treatment of foreign direct investment, (II) summarizes the economic predicates required for territorial tax systems to advance economic efficiency, (III) explains why the phenomenon of stateless income means that those predicates are not met today, and are unlikely to be met in the future, and (IV) analyzes current U.S. legislative international tax proposals. In doing the last of these, the presentation points out how the legislative proposal advanced by Dave Camp, Chairman of the House ...