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Full-Text Articles in Law

The Future As History: The Prospects For Global Convergence In Corporate Governance And Its Implications, John C. Coffee Jr. Jan 1999

The Future As History: The Prospects For Global Convergence In Corporate Governance And Its Implications, John C. Coffee Jr.

Faculty Scholarship

What forces explain corporate structure and shareholder behavior? For decades this question has gone unasked, as both corporate law scholars and practitioners tacitly accepted the answer given in 1932 by Adolf Berle and Gardiner Means that the separation of ownership and control stemming from ownership fragmentation explained and assured shareholder passivity. Over this decade, however, corporate law scholars have recognized that this standard answer begs an essential prior question: if ownership fragmentation explains shareholder passivity, what explains ownership fragmentation? Although the Berle and Means model assumed that large-scale enterprises could raise sufficient capital to conduct their operations only by attracting ...


An Economic Analysis Of The Guaranty Contract, Avery W. Katz Jan 1999

An Economic Analysis Of The Guaranty Contract, Avery W. Katz

Faculty Scholarship

Guaranty arrangements, in which one person stands as surety for a second person's obligation to a third, are ubiquitous in commercial transactions and in commercial law. In recent years, however, scholarly attention to the topic has been scant; and no one has systematically analyzed this body of law and practice from an economic policy perspective. Accordingly, this Article attempts to outline the basic economic logic underlying the guaranty relationship, and applies the results to a variety of specific issues in government policy and private planning. It poses and answers three main questions: First, why would a creditor prefer to ...


The Future As History: The Prospects For Global Convergence In Corporate Governance And Its Implications, John C. Coffee Jr. Jan 1999

The Future As History: The Prospects For Global Convergence In Corporate Governance And Its Implications, John C. Coffee Jr.

Faculty Scholarship

Comparative research has shown that, even at the level of the largest firms, corporate ownership structure tends to be highly concentrated, with dispersed ownership structures characterizing only the Anglo/American context. What explains these national boundaries between dispersed and concentrated ownership structures? Earlier in this decade, several authors (most notably, Mark Roe) proposed "political" theories of corporate finance under which dispersed ownership was viewed as largely the result (in the U.S.) of regulatory constraints imposed on the development of financial intermediaries. Under this view, a deep-rooted American political ideology disfavored concentrated financial power, with the alleged result that the ...


Taking The "I" Out Of "Team": Intra-Firm Monitoring And The Content Of Fiduciary Duties, Eric L. Talley Jan 1999

Taking The "I" Out Of "Team": Intra-Firm Monitoring And The Content Of Fiduciary Duties, Eric L. Talley

Faculty Scholarship

This article employs a "team-production" account of the firm to investigate the relationship between organizational structure and fiduciary duties. Although the fiduciaries or "closely-held" firms (such as partnerships and close corporations) have historically been held to stricter standards of comportment than have their counterparts in widely-held firms (such as public corporations), a team-production analysis raises some troubling questions about this traditional distinction. In particular, I shall argue that within closely-held firms, enhanced fiduciary duties can create inefficient monitoring incentives among team members – a problem that is largely avoided within widely-held organizational structures. Moreover, these strategic costs imply that weaker rather ...


Executives And Hedging: The Fragile Legal Foundation Of Incentive Compatibility, David M. Schizer Jan 1999

Executives And Hedging: The Fragile Legal Foundation Of Incentive Compatibility, David M. Schizer

Faculty Scholarship

In the capital markets, the 1990s have been the decade of executive stock options and the derivatives market. Legal scholars and economists have begun to realize that, in combination, these two trends raise a serious concern. Options are supposed to inspire better performance by tying pay to the stock price. Yet, what if an executive could use the derivatives market to simulate a sale of her option – a practice known as "hedging" – without violating her contract with the firm? The incentive justification for option grants would no longer hold.

This Article demonstrates that the tax law helps avert this consequence ...


The Constitution And The Cathedral: Prohibiting, Purchasing, And Possibly Condemning Tobacco Advertising, Thomas W. Merrill Jan 1999

The Constitution And The Cathedral: Prohibiting, Purchasing, And Possibly Condemning Tobacco Advertising, Thomas W. Merrill

Faculty Scholarship

This Article has both theoretical and practical objectives, which are closely interrelated. The theoretical objective is to develop a framework for understanding the "transaction structure" of constitutional rights. By this, I refer to the different rules that determine when the government may purchase, condemn, or otherwise extinguish constitutional rights. The practical objective is to consider different options that may be available to the government, as part of a broader effort to reduce the incidence of smoking, to curtail tobacco advertising that would otherwise be protected under the First Amendment. It is my hope that the theoretical framework will illuminate the ...


A Government For Our Time? Business Improvement Districts And Urban Governance, Richard Briffault Jan 1999

A Government For Our Time? Business Improvement Districts And Urban Governance, Richard Briffault

Faculty Scholarship

The emergence and rapid spread of business improvement districts ("BIDs") is one of the most important recent developments in American cities. BIDs have been controversial, with both supporters and proponents viewing the districts as part of a trend toward the privatization of the public sector. By examining the legal and political structures that determine BID formation, functions, finances and governance, this Article determines that BIDs are not private entities but are, instead, a distinctive hybrid of public and private elements. Moreover, although the particular fusion of public and private institutions, values and concerns embodied in the BID is unique, Professor ...


Lessons From Fiascos In Russian Corporate Governance, Merritt B. Fox, Michael Heller Jan 1999

Lessons From Fiascos In Russian Corporate Governance, Merritt B. Fox, Michael Heller

Faculty Scholarship

Bad corporate governance is often invoked to explain poor enterprise performance, but the catch phrase is never precisely defined. Neither its consequences for the real economy, nor its causes in particular countries has been adequately explained. This paper uses Russian enterprise examples to address these open questions in corporate governance theory. We define corporate governance by looking to the economic functions of the firm rather than to any particular set of national corporate laws. Firms exhibit good corporate governance when their managers maximize residuals and, in the case of investor-owned firms, make pro rata distributions to shareholders.

Using this definition ...


Privatization And Corporate Governance: The Lessons From Securities Market Failure, John C. Coffee Jr. Jan 1999

Privatization And Corporate Governance: The Lessons From Securities Market Failure, John C. Coffee Jr.

Faculty Scholarship

This paper analyzes the comparative experiences of Poland and the Czech Republic with voucher privatization. Because of a number of similarities between these two transitional economies, it finds their comparative experience to provide a useful natural experiment, with the critical distinguishing variable being their different approaches to regulatory controls. However, while their experiences have been very different, their substantive corporate law was very similar. The true locus of regulatory differences appears then to have been the area of securities market regulation, where their approaches differed dramatically.

Re-examining the work of LaPorta, Lopez-de-Silanos, Shleifer & Vishny, this paper submits that (1) the homogenity of both common law systems and civil law systems has been overstated; (2) common law systems in particular differ ...


Does Venture Capital Require An Active Stock Market?, Ronald J. Gilson, Bernard S. Black Jan 1999

Does Venture Capital Require An Active Stock Market?, Ronald J. Gilson, Bernard S. Black

Faculty Scholarship

The United States has both an active venture capital industry and well-developed stock markets. Japan and Germany have neither. We argue here that this is no accident – that venture capital can flourish especially – and perhaps only – if the venture capitalist can exit from a successful portfolio company through an initial public offering (IPO), which requires an active stock market. Understanding the link between the stock market and the venture capital market requires understanding the contractual arrangements between entrepreneurs and venture capital providers especially the importance of exit by venture capitalists and the opportunity, present only if IPO exit is possible ...


Secured Credit And Software Financing, Ronald J. Mann Jan 1999

Secured Credit And Software Financing, Ronald J. Mann

Faculty Scholarship

Although software is one of the most important assets many businesses hold, almost nothing has been written about the dynamics of software financing. Under a conventional view of secured financing, the difficulties of liquidating software would limit its value as collateral for secured loans. But the actual transactions belie that view, because lenders advance billions of dollars in asset-based software loans each year.

Part I of the article describes the legal and practical difficulties that make it so impractical for a lender to liquidate software-related collateral: the uncertainty about where to file; the requirement that the borrower deposit the source ...


Privatization And Corporate Governance: The Lessons From Securities Market Failure, John C. Coffee Jr. Jan 1999

Privatization And Corporate Governance: The Lessons From Securities Market Failure, John C. Coffee Jr.

Faculty Scholarship

This paper analyzes the comparative experiences of Poland and the Czech Republic with voucher privatization. Because of a number of similarities between these two transitional economies, it finds their comparative experience to provide a useful natural experiment, with the critical distinguishing variable being their different approaches to regulatory controls. However, while their experiences have been very different, their substantive corporate law was very similar. The true locus of regulatory differences appears then to have been the area of securities market regulation, where their approaches differed dramatically.

Re-examining the work of LaPorta, Lopez-de-Silanos, Shleifer & Vishny, this paper submits that (1) the homogenity of both common law systems and civil law systems has been overstated; (2) common law systems in particular differ ...


Verification Institutions In Financing Transactions, Ronald J. Mann Jan 1999

Verification Institutions In Financing Transactions, Ronald J. Mann

Faculty Scholarship

This article examines the institutions that private parties have developed to resolve information asymmetries in financing transactions. It analyzes all of those institutions as variations on the hostage/bond transaction commonly described in the context of relational contracting.

The article proceeds in three steps. The first part provides a simple model of the bonding process that I use to describe the institutions discussed later in the article. That part emphasizes how a one-sided punitive hostage or bond arrangement provides a useful solution by enhancing the cost of a breach yet minimizing the incentive to opportunism by the holder of the ...


A Theory Of Legal Presumptions, Antonio E. Bernardo, Eric L. Talley, Ivo Welch Jan 1999

A Theory Of Legal Presumptions, Antonio E. Bernardo, Eric L. Talley, Ivo Welch

Faculty Scholarship

This paper develops a theoretical account of presumptions, focusing on their capacity to mediate between costly litigation and ex ante incentives. We augment a standard moral hazard model with a redistributional litigation game in which a legal presumption parameterizes how a court "weighs" evidence offered by the opposing sides. Strong pro-defendant presumptions can foreclose lawsuits altogether, but also lead to shirking. Strong pro-plaintiff presumptions have the opposite effects. Moderate presumptions give rise to equilibria in which productive effort and suit occur probabilistically. The socially-optimal presumption trades off litigation costs against agency costs, and could be either strong or moderate, depending ...


Why Start-Ups ?, Joseph Bankman, Ronald J. Gilson Jan 1999

Why Start-Ups ?, Joseph Bankman, Ronald J. Gilson

Faculty Scholarship

The prototypical start-up involves an employee leaving her job with an idea and selling a portion of that idea to a venture capitalist. In many respects, however, the idea should be worth more to the former employer. The former employer can be expected to have better information concerning the employee-entrepreneur and the technology, have opportunities to capture economies of scale and scope not available to a venture capital-backed start-up, and will receive more favorable tax treatment than the start-up should the innovation fail. In connection with an auction of the idea, the former employer should have both a more accurate ...


The Legal Infrastructure Of High Technology Industrial Districts: Silicon Valley, Route 128, And Covenants Not To Compete, Ronald J. Gilson Jan 1999

The Legal Infrastructure Of High Technology Industrial Districts: Silicon Valley, Route 128, And Covenants Not To Compete, Ronald J. Gilson

Faculty Scholarship

In recent years, scholars and policymakers have rediscovered the concept of industrial districts – spatial concentrations of firms in the same industry or related industries. In this Article, Professor Gilson examines te relationship between high-technology industrial districts and legal infrastructure by comparing the legal regimes of California's Silicon Valley and Massachusetts's Route 128. He contends that legal rides governing employee mobility influence the dynamics of high technology industrial districts by either encouraging rapid employee movement between employers and to startups, as in Silicon Valley, or discouraging such movement, as in Route 128. Because California does not enforce post-employment covenants ...