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Full-Text Articles in Law

Share Price As A Poor Criterion For Good Corporate Law, Lynn A. Stout Dec 2005

Share Price As A Poor Criterion For Good Corporate Law, Lynn A. Stout

Cornell Law Faculty Publications

Academics, reformers, and business leaders all yearn for a single, objective, easy-to-read measure of corporate performance that can be used to judge the quality of public corporation law and practice. This collective desire is so powerful that it has led many commentators to grab onto the first marginally plausible candidate: share price.

Contemporary economic and corporate theory, as well as recent business history, nevertheless warn us against unthinking acceptance of share price as a measure of corporate performance. This Essay offers a brief reminder of some of the many reasons why stock prices often fail to reflect true corporate performance ...


European Law On Capital Markets – Quo Vadis?, Daniela Huemer Apr 2005

European Law On Capital Markets – Quo Vadis?, Daniela Huemer

Cornell Law School Inter-University Graduate Student Conference Papers

The occurrence of more than a dozen accounting scandals in the United States over the past few years have deeply shaken the capital market and have led some to believe that “corporate and legal culture has lost all sense of right and wrong.” Scandals at companies such as Enron and Worldcom have cost thousands of employees their jobs and caused thousands of investors to lose their investments completely. Similar scandals have happened in Europe as well, such as at Parmalat and Lernout & Hauspie, which has caused an increasing reluctance among investors to trust companies with their dollars.

These circumstances have sparked a major debate over corporate governance. Investors, having lost hundreds of billions of dollars pleaded for more protection to ensure that such frauds would not happen again. The US Congress had only a short time period in which to respond to these events and try to prevent the situation from deteriorating further. Congress’s work resulted in the implementation of the Sarbanes-Oxley Act, which was “the most sweeping and important US federal securities legislation affecting public companies and other market participants since the SEC was created in 1934”. The European response to the Sarbanes-Oxley Act is manifested in several directives in the field of the law on capital markets. Both the United States and the European Union have had to deal with the issue of restoring investors’ lost confidence, and both have tried to solve the problem by enacting more detailed provisions. This paper examines the present trend in the field of law on capital markets more closely with a particular focus on the European Union. So far, scholars have concentrated only – if at all – on summarizing the content of the several Directives, while leaving aside the question whether the legislative activity of the European Union is a good or bad policy.

I first conduct a closer examination of European capital markets law. In particular my focus is on the most recent and important issues the Member States had, and partly still have to deal with: the Directive on Market Abuse 2003/6/EC, the Prospectus Directive 2003/71/EC and the Transparency Directive 2004/109/EC. I then argue that: (i.) The available data indicates that law on capital markets is moving toward greater regulation on a European level as well as toward a uniformity; and (ii.) although attempting to achieve harmonization on an EU-wide basis is preferable to a “state by state ...


The Fate Of Firms: Explaining Mergers And Bankruptcies, Clas Bergström, Theodore Eisenberg, Stefan Sundgren, Martin T. Wells Mar 2005

The Fate Of Firms: Explaining Mergers And Bankruptcies, Clas Bergström, Theodore Eisenberg, Stefan Sundgren, Martin T. Wells

Cornell Law Faculty Publications

Using a uniquely complete data set of more than 50,000 observations of approximately 16,000 corporations, we test theories that seek to explain which firms become merger targets and which firms go bankrupt. We find that merger activity is much greater during prosperous periods than during recessions. In bad economic times, firms in industries with high bankruptcy rates are less likely to file for bankruptcy than they are in better years, supporting the market illiquidity arguments made by Shleifer and Vishny (1992). At the firm level, we find that, among poorly performing firms, the likelihood of merger increases with ...


Who Pays The Auditor Calls The Tune?: Auditing Regulations And Clients' Incentives, Amy Shapiro Jan 2005

Who Pays The Auditor Calls The Tune?: Auditing Regulations And Clients' Incentives, Amy Shapiro

Cornell Law Faculty Publications

As we move on from the financial scandals of the early 2000s, the question of how to prevent the next Enron continues to be a pressing one. This Article focuses on the law’s deeply conflicted treatment of auditors of public corporations. Though the audit firm is charged with serving as the public’s watchdog in insuring good financial disclosure, the auditor’s actual client is the audited corporation itself, whose interests concerning disclosure are not necessarily aligned with those of investors. Because the Sarbanes-Oxley Act of 2002 left this structure in place, further reform is needed. One promising suggestion ...


On The Nature Of Corporations, Lynn A. Stout Jan 2005

On The Nature Of Corporations, Lynn A. Stout

Cornell Law Faculty Publications

Legal experts traditionally distinguish corporations from unincorporated business forms by focusing on corporate characteristics like limited shareholder liability, centralized management, perpetual life, and free transferability of shares. While such approaches have value, this essay argues that the nature of the corporation can be better understood by focusing on a fifth, often-overlooked, characteristic of corporations: their capacity to "lock in" equity investors' initial capital contributions by making it far more difficult for those investors to subsequently withdraw assets from the firm. Like a tar pit, a corporation is much easier for equity investors to get into, than to get out of ...