Law Commons^™

Is There A Delaware Effect For Controlled Firms?, Edward Fox

Articles

The impact of Delaware incorporation on firm value remains a central question in corporate law. Despite the difficulty scholars have had in agreeing on an answer to this question, there is a consensus that Delaware has long enjoyed stable and important advantages in the expertise of its judiciary and its extensive case law. These advantages are believed to be particularly important for firms with a controlling shareholder. This Article attempts to empirically measure the effect of Delaware incorporation on these controlled firms and thus helps us understand the market value of Delaware’s judiciary and case law. It finds, surprisingly, that …

Economic Crisis And The Integration Of Law And Finance: The Impact Of Volatility Spikes, Edward G. Fox, Merritt B. Fox, Ronald J. Gilson

Articles

The 2008 financial crisis raised puzzles important for understanding how the capital market prices common stocks and in turn, for the intersection between law and finance. During the crisis, there was a dramatic five-fold spike, across all industries, in “idiosyncratic risk”—the volatility of individual-firm share prices after adjustment for movements in the market as a whole.

This phenomenon is not limited to the most recent financial crisis. This Article uses an empirical review to show that a dramatic spike in idiosyncratic risk has occurred with every major downturn from the 1920s through the recent financial crisis. It canvasses three possible …

Bonded To The State: A Network Perspective On China's Corporate Debt Market, Li-Wen Lin, Curtis J. Milhaupt

All Faculty Publications

A corporate bond market is thought to play an important role as a supplement to bank-oriented financial systems in emerging markets – functioning in effect as a “spare tire.” Yet bond markets typically rely upon a formal institutional foundation that is often lacking in developing economies. China’s corporate bond market is huge, yet scholarly analysis of it is relatively scarce and some of its elements remain poorly understood. In this paper, we use a network perspective to explore the formation, operation and function of the Chinese corporate bond market. Our effort begins by unpacking the complexities of the market’s structure …

'Quack Corporate Governance' As Traditional Chinese Medicine – The Securities Regulation Cannibalization Of China's Corporate Law And A State Regulator's Battle Against Party State Political Economic Power, Nicholas C. Howson

Articles

From the start of the People’s Republic of China’s (PRC) “corporatization ” project in the late 1980s, a Chinese corporate governance regime subject to increasingly enabling legal norms has been determined by mandatory regulations imposed by the PRC securities regulator, the China Securities Regulatory Commission (CSRC). Indeed, the Chinese corporate law system has been cannibalized by all - encompassing securities regulation directed at corporate governance, at least for companies with listed stock. This Article traces the path of that sustained intervention and makes a case — wholly contrary to the “quack corporate governance” critique much aired in the United States …

Revisiting 'Truth In Securities Revisited': Abolishing Ipos And Harnessing Private Markets In The Public Good, Adam C. Pritchard

Articles

My thesis is that the transition between private- and public-company status could be less bumpy if we unify the public-private dividing line under the Securities Act and Exchange Act. The insight builds on Cohen's thought experiment where Congress first enacted the Exchange Act. My proposed public-private standard would take the company-registration model to its logical conclusion. The customary path to public-company status is through an IPO, typically with simultaneous listing of the shares on an exchange. There is nothing about public offerings, however, that makes them inherently antecedent to public-company status. What if companies became public, with required periodic disclosures …

Domestic Effects Of The Foreign Activities Of U.S. Multinationals, Mihir A. Desai, C. Fritz Foley, James R. Hines Jr.

Articles

Do firms investing abroad simultaneously reduce their domestic activity? This paper analyzes the relationship between the domestic and foreign operations of US manufacturing firms between 1982 and 2004 by instrumenting for changes in foreign operations with GDP growth rates of the foreign countries in which they invest. Estimates produced using this instrument indicate that 10 percent greater foreign investment is associated with 2.6 percent greater domestic investment, and 10 percent greater foreign employee compensation is associated with 3.7 percent greater domestic employee compensation. These results do not support the popular notion that expansions abroad reduce a firm’s domestic activity, instead …

London As Delaware?, Adam C. Pritchard

Articles

Jurisdictional competition in corporate law has long been a staple of academic-and sometimes, political-debate in the United States. State corporate law, by long-standing tradition in the United States, determines most questions of internal corporate governance-the role of boards of directors, the allocation of authority between directors, managers and shareholders, etc.-while federal law governs questions of disclosure to shareholders-annual reports, proxy statements, and periodic filings. Despite substantial incursions by Congress, most recently in the Sarbanes-Oxley Act of 2002, this dividing line between state and federal law persists, so state law arguably has the most immediate impact on corporate governance outcomes.

London As Delaware?, Adam C. Pritchard

Articles

In the United States, state corporate law determines most questions of internal corporate governance - the role of directors; the allocation of authority between directors, managers, and shareholders; etc. - while federal law governs questions of disclosure to shareholders - annual reports, proxy statements, and periodic filings. Despite substantial incursions by Congress, most recently with the Sarbanes-Oxley Act, this dividing line between state and federal law persists, so state law arguably has the most immediate effect on corporate governance outcomes.

Corporate Taxation And International Competition, James R. Hines Jr.

Book Chapters

Many countries tax corporate income heavily despite the incentives that they face to reduce tax rates in order to attract greater investment, particularly investment from foreign sources. The volume of world foreign direct investment (FDI) has grown enormously since 1980, thereby increasing a country's ability to attract significant levels of new investment by reducing corporate taxation. The evidence indicates, however, that corporate tax collections are remarkably persistent relative to gross domestic product ( GDP), government revenues, or other indicators of underlying economic activity or government need. If this were not true- if corporate income taxation were rapidly disappearing around the …

Should Issuers Be On The Hook For Laddering? An Empirical Analysis Of The Ipo Market Manipulation Litigation, Adam C. Pritchard, Stephen J. Choi

Articles

On December 6, 2000, the Wall Street Journal ran a front-page story exposing abuses in the market for initial public offerings (IPOs). The story revealed "tie-in" agreements between investment banks and initial investors seeking to participate in "hot" offerings. Under those agreements, initial investors would commit to buy additional shares of the offering company's stock in secondary market trading in return for allocations of shares in the IPO. As the Wall Street Journal related, those "[c]ommitments to buy in the after-market lock in demand for additional stock at levels above the IPO price. As such, they provide the rocket fuel …

Self-Regulation And Securities Markets, Adam C. Pritchard

Articles

Enron, Arthur Andersen, Tyco, ImClone, WorldCom, Adelphia - as American investors reel from accounting scandals and self-dealing by corporate insiders, the question of trust in the securities markets has taken on a new urgency. Securities markets cannot operate without trust. Markets known for fraud, insider trading, and manipulation risk a downward spiral as investors depart in search of safer investments. Today, many investors are rethinking the wisdom of entrusting their financial futures to the stock market. Absent trust in the integrity of the securities markets, individuals will hoard their money under the proverbial mattress.

A Property Theory Perspective On Russian Enterprise Reform, Michael Heller

Book Chapters

Why have Russian enterprises performed so poorly since privatization? This is a problem with many answers, each independently sufficient: the bleak mix includes vacillating macroeconomic policy, endemic corruption, a corrosive tax structure, poor human capital, and so forth. Even well-performing companies must hide good results because visible profits or dividends provoke confiscatory taxation and mafia visits. In such a difficult environment, the rule of law generally, and corporate governance in particular, may seem not to count. Macroeconomic implosions dwarf subtle distinctions in corporate dividend rules or minority voting rights.

Asset Securitization And Corporate Risk Allocation, Christopher W. Frost

Law Faculty Scholarly Articles

Asset securitization is a financial innovation in which corporations sell financial assets to a specially formed entity that in turn taps financial markets for the purchase price. The device provides firms an alternative to raising capital through traditional debt and equity markets. Practitioners of the approach tout securitization as a means through which a firm can lower its overall cost of capital by limiting the risk facing investors in the securitized assets. Commentators have described asset securitization as "one of the most important financing vehicles in the United States." Interest in the device is increasing dramatically as more companies see …

Internal Governance Standards, Suramya Balachandran

LLM Theses and Essays

Corporate control has a variety of connotations; it can mean the group of individuals who are regarded as “the control” of a corporation, the office of a corporation, or a fiduciary relationship between the office holder and the corporation. Corporate control transactions are changes in a corporation’s structure motivated by the desire for growth of the corporation, such as setting up new divisions, acquiring or being acquired by another corporation, selling or buying stock, and entering or leaving markets. Control transactions have been a successful business practice since the 1980s. The first part of this thesis analyzes the benefits of …

Untenable Status Of Corporate Governance Listing Standards Under The Securities Exchange Act, Douglas C. Michael

Law Faculty Scholarly Articles

United States securities markets operate under a system of supervised self-regulation created by the Securities Exchange Act of 1934 (Exchange Act). That system includes substantive regulation of the traders and the issuers of securities traded in those markets through the use of listing standards.

These listing standards have a unique status. They are part of a self-regulatory system, but are not classic self-regulation. The markets do not govern the traders of which it consists; rather, it governs outsiders—the issuers. The markets and the Securities and Exchange Commissions have sought to control issuers in ways not clearly related to trading in …