Law Commons^™

Special Purpose Acquisition Companies (Spacs) And The Sec, Neal Newman, Lawrence J. Trautman

Faculty Scholarship

Special Purpose Acquisition Companies (SPACs) are simply enterprises that raise money from the public with the intention of purchasing an existing business and becoming publicly traded in the securities markets. If the SPAC is successful in raising money and the acquisition takes place, the target company takes the SPAC’s place on a stock exchange in a transaction that resembles a public offering. Also known as “blank-check” or “reverse merger” companies, this process avoids many of the pitfalls of a traditional initial public offering.

During late 2020 and 2021 an unprecedented surge in the popularity and issuance of Special Purpose Acquisition …

The Long-Term Effects Of Short Selling And Negative Activism, Peter Molk, Frank Partnoy

UF Law Faculty Publications

We investigate the long-term effects of short selling and “negative activism,” where activists seek to profit from declines in the share prices of targeted firms. We show that negative activism is associated with significant and declining long-term share returns and operating performance, as well as an increase in securities litigation and regulatory actions against targeted firms. We explore the policy implications of this new evidence, including ways that policy makers and market participants might take advantage of the potential benefits of short selling negative activism. Our message is straightforward: resist impulses to curb short selling, and instead embrace attempts to …

Sustainable Business Law? The Key Role Of Corporate Governance And Finance, Jason J. Czarnezki, Colin Meyers

Elisabeth Haub School of Law Faculty Publications

Lawyers, law schools, and corporate entities have shown an increased interest in sustainable business strategies. This is reflected by the increase in sustainability practice groups, law school courses, and textbooks focusing on the relationship between sustainability and business law; lawyers moving into executive-level sustainability positions in the private sector; and the proliferation of corporate sustainability policies, as well as increased interest in mitigating climate risk and engaging in sustainable finance. But what exactly is sustainable business law, and what role do lawyers play in advancing sustainability in the corporate world? This Article argues that “sustainable business law” has emerged as …

The Millennial Corporation, Michal Barzuza, Quinn Curtis, David H. Webber

Faculty Scholarship

In a prior paper, Shareholder Value(s): Index Fund ESG Activism and The New Millennial Corporate Governance, we argued that the index funds’ sudden shift towards socially-responsible investment, after decades of ignoring or opposing it, was driven by the competition to manage growing Millennial wealth. In our view, the main contribution of that paper was identifying sharp differences between Millennials and prior generations over investment, consumption, and employment. It has now become clear that this contribution has implications far beyond index-fund environmental, social and governance (“ESG”) activism and is in fact completely transforming the corporate world, marking a fundamental shift in …

Cleaning Corporate Governance, Jens Frankenreiter, Cathy Hwang, Yaron Nili, Eric L. Talley

Faculty Scholarship

Although empirical scholarship dominates the field of law and finance, much of it shares a common vulnerability: an abiding faith in the accuracy and integrity of a small, specialized collection of corporate governance data. In this paper, we unveil a novel collection of three decades’ worth of corporate charters for thousands of public companies, which shows that this faith is misplaced.

We make three principal contributions to the literature. First, we label our corpus for a variety of firm- and state-level governance features. Doing so reveals significant infirmities within the most well-known corporate governance datasets, including an error rate exceeding …

Corporate Finance For Social Good, Dorothy S. Lund

Faculty Scholarship

Corporations are under pressure to use their outsized power to benefit society, but this advocacy is unlikely to result in meaningful change because corporate law’s incentive structure rewards fiduciaries who maximize shareholder wealth. Therefore, this Essay proposes a way forward that works within the wealth-maximization framework and yet could result in dramatic social change. The idea is simple: Use private debt markets to provide incentives for public-interested corporate action. Specifically, individuals who value prosocial corporate decisions could finance them by contributing to corporate social responsibility (CSR) bonds that would offset the corporation’s implementation costs. To provide an incentive to depart …

Shareholder Value(S): Index Fund Esg Activism And The New Millennial Corporate Governance, David H. Webber, Michal Barzuza, Quinn Curtis

Faculty Scholarship

Major index fund operators have been criticized as ineffective stewards of the firms in which they are now the largest shareholders. While scholars debate whether this passivity is a serious problem, index funds’ generally docile approach to ownership is broadly acknowledged.

However, this Article argues that the notion that index funds are passive owners overlooks an important dimension in which index funds have demonstrated outspoken, confrontational, and effective stewardship. Specifically, we document that index funds have taken a leading role in challenging management and voting
against directors in order to advance board diversity and corporate sustainability. We show that index …

Tim Edgar: The Accidental Comparatist, Kim Brooks

Articles, Book Chapters, & Popular Press

This paper focuses on the contributions of Tim Edgar as a major comparative law scholar. It reviews the major debates and theoretical directions in comparative law scholarship and offers a case study of Edgar’s contributions in the light of the major debates in comparative law. Edgar’s development as a comparatist is traced through three defined phases. His identification of the policy problem to be resolved is highlighted as a major feature of his contribution.

The Case For Empowering Quality Shareholders, Lawrence A. Cunningham

GW Law Faculty Publications & Other Works

Abstract Anyone can buy stock in a public company, but not all shareholders are equally committed to a company’s long-term success. In an increasingly fragmented financial world, shareholders’ attitudes toward the companies in which they invest vary widely, from time horizon to conviction. Faced with indexers, short-term traders, and activists, it is more important than ever for businesses to ensure that their shareholders are dedicated to their missions. Today’s companies need “quality shareholders,” as Warren Buffett called those who “load up and stick around,” or buy large stakes and hold for long periods. While scholars in recent years have extensively …

The New Titans Of Wall Street: A Theoretical Framework For Passive Investors, Jill E. Fisch, Asaf Hamdani, Steven Davidoff Solomon

All Faculty Scholarship

Passive investors — ETFs and index funds — are the most important development in modern day capital markets, dictating trillions of dollars in capital flows and increasingly owning much of corporate America. Neither the business model of passive funds, nor the way that they engage with their portfolio companies, however, is well understood, and misperceptions of both have led some commentators to call for passive investors to be subject to increased regulation and even disenfranchisement. Specifically, this literature takes a narrow view both of the market in which passive investors compete to manage customer funds and of passive investors’ participation …

Nonvoting Shares And Efficient Corporate Governance, Dorothy S. Lund

Faculty Scholarship

A growing number of technology companies, including Google, Zillow, and Snap, have issued stock that does not allow investors to vote on corporate decisions. But there is fundamental disagreement among scholars and investors about whether nonvoting stock is beneficial or harmful. Critics argue that nonvoting shares perpetually insulate corporate insiders from influence and oversight, and therefore increase agency costs. By contrast, proponents contend that nonvoting shares may provide benefits that exceed these agency costs, such as enabling corporate insiders to pursue their long-term vision for the company without interference from outside shareholders.

This Article offers a novel perspective on this …

Hyperfunding Regulating Financial Innovations, Seth C. Oranburg

Law Faculty Scholarship

Innovations in corporate finance are driven by frustrations with present regulations and fueled by the internet and social media. Hyperfunding is one such example: Tesla paved the way for an electric vehicle revolution by preselling hundreds of thousands of its Model 3 EV direct to consumers. Unwary consumers may not have realized that they were underwriting Tesla’s bold strategy to transform multiple product markets. Risks were not disclosed. Rewards proved illusory. Investors would have been entitled to disclosures and colorable claims of fraud when Tesla missed milestones and deadlines. But consumers can only get their $1000 deposit back, without interest, …

The Modigliani-Miller Theorem At 60: The Long-Overlooked Legal Applications Of Finance’S Foundational Theorem, Michael S. Knoll

All Faculty Scholarship

2018 marks the 60th anniversary of the publication of Franco Modigliani and Merton Miller’s The Cost of Capital, Corporation Finance, and the Theory of Investment. Widely hailed as the foundation of modern finance, their article, which purports to demonstrate that a firm’s value is independent of its capital structure, is little known by lawyers, including legal academics. That is unfortunate because the Modigliani-Miller capital structure irrelevancy proposition (when inverted) provides a framework that can be extremely useful to legal academics, practicing attorneys and judges.

The New Bond Workouts, William W. Bratton, Adam J. Levitin

All Faculty Scholarship

Bond workouts are a famously dysfunctional method of debt restructuring, ridden with opportunistic and coercive behavior by bondholders and bond issuers. Yet since 2008 bond workouts have quietly started to work. A cognizable portion of the restructuring market has shifted from bankruptcy court to out-of-court workouts by way of exchange offers made only to large institutional investors. The new workouts feature a battery of strong-arm tactics by bond issuers, and aggrieved bondholders have complained in court. The result has been a new, broad reading of the primary law governing workouts, section 316(b) of the Trust Indenture Act of 1939 (“TIA”), …

Appraisal Arbitrage And Shareholder Value, Scott Callahan, Darius Palia, Eric L. Talley

Faculty Scholarship

Post-merger appraisal rights have been the focus of heated controversy within mergers and acquisitions circles in recent years. Traditionally perceived as an arcane and cabalistic proceeding, the appraisal action has recently come to occupy center stage through the ascendancy of appraisal arbitrage — whereby investors purchase target-company shares shortly after an announcement principally to pursue appraisal. Such strategies became more feasible and profitable a decade ago, on the heels of two seemingly technocratic reforms in Delaware: (i) the statutory codification of pre-judgment interest, pegging a presumptive rate at five percent above the federal discount rate; and (ii) the Transkaryotic opinion, …

The Tax Treatment Of Tokens: What Does It Betoken?, David J. Shakow

All Faculty Scholarship

Digital tokens have been used to raise substantial amounts of money. But little attention has been paid to the tax consequences surrounding their issuance and sale. There are significant potential tax liabilities lurking in the use of digital tokens. But, because of the anonymity inherent in the blockchain structures used for the issuance of tokens and payments for them, there is a significant question as to whether those tax liabilities will ever be collected.

Some Key Things U.S. Entrepreneurs Need To Know About The Law And Lawyers, Lawrence J. Trautman, Anthony J. Luppino, Malika Simmons

Faculty Works

New business formation is a powerful economic engine that creates jobs. Diverse legal issues are encountered as a start-up entity approaches formation, initial capitalization and fundraising, arrangements with employees and independent contractors, and relationships with other third parties. The endeavors of a typical start-up in the United States will likely implicate many of the following areas of law: intellectual property; business organizations; tax laws; employment and labor laws; securities regulation; contracts and licensing agreements; commercial sales; debtor-creditor relations; real estate law; health and safety laws/codes; permits and licenses; environmental protection; industry specific regulatory laws and approval processes; tort/personal injury, products …

Rediscovering Corporate Governance In Bankruptcy, David A. Skeel Jr.

All Faculty Scholarship

In this Essay on Lynn LoPucki and Bill Whitford’s corporate reorganization project, written for a symposium honoring Bill Whitford, I begin by very briefly describing its historical antecedents. The project draws on the insights and perspectives of two closely intertwined traditions: the legal realism of 1930s, whose exemplars included William Douglas and other participants in the SEC study; and the law in action movement at the University of Wisconsin. In Section II, I briefly survey the key contributions of the corporate governance project, which punctured the then-conventional wisdom about the treatment of shareholders in bankruptcy, managers’ principal allegiance, and many …

Single Point Of Entry And The Bankruptcy Alternative, David A. Skeel Jr.

All Faculty Scholarship

This Essay, which will appear in Across the Great Divide: New Perspectives on the Financial Crisis, a Brookings Institution and Hoover Institution book, begins with a brief overview of concerns raised by the Lehman Brothers bankruptcy about the adequacy of our existing architecture for resolving the financial distress of systemically important financial institutions. The principal takeaway of the first section is that Title II as enacted left most of these issues unanswered. By contrast, the FDIC’s new single point of entry strategy, which is introduced in the second section, can be seen as addressing nearly all of them. The …

Bankers And Chancellors, William W. Bratton, Michael L. Wachter

All Faculty Scholarship

The Delaware Chancery Court recently squared off against the investment banking world with a series of rulings that tie Revlon violations to banker conflicts of interest. Critics charge the Court with slamming down fiduciary principles of self-abnegation in a business context where they have no place or, contrariwise, letting culpable banks off the hook with ineffectual slaps on the wrist. This Article addresses this controversy, offering a sustained look at the banker-client advisory relationship. We pose a clear answer to the questions raised: although this is nominally fiduciary territory, both banker-client relationships and the Chancery Court’s recent interventions are contractually …

Performance-Sensitive Debt: From Asset-Based Loans To Startup Financing, Houman B. Shadab

Articles & Chapters

This Article develops a unique theory of performance-sensitive debt and argues that certain revenue-stage startups may be missing out on an important source of capital from asset-based loans. Debt contracts are performance sensitive to the extent any of the borrower’s obligations adjust in response to the performance of the borrower. The three main types of performance sensitivity I identify are (1) a loan’s interest rate adjusting based on the performance of the borrower; (2) the amount of available credit adjusting based on the value of collateral; and (3) renegotiation following breach of a loan covenant. Conceptualizing performance sensitivity as a …

Striking The Right Balance: Investor And Consumer Protection In The New Financial Marketplace: Introduction, Lisa Fairfax, Arthur E. Wilmarth Jr

All Faculty Scholarship

On March 2, 2012, The George Washington University Law School's Center for Law, Economics & Finance and The George Washington Law Review jointly hosted a symposium entitled "Striking the Right Balance: Investor and Consumer Protection in the New Financial Marketplace."' The symposium focused on two principal topics. First, participants analyzed the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank") on investors and consumers in three areas of federal regulation-securities markets, derivatives markets, and consumer financial products. Second, the symposium evaluated the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley") on its tenth anniversary and considered whether Sarbanes-Oxley's legacy might …

A Theory Of Preferred Stock, William W. Bratton, Michael L. Wachter

All Faculty Scholarship

No abstract provided.

To Be Or Not To Be (A Security): Funding For-Profit Social Enterprises, Joan Macleod Heminway

Scholarly Works

This article explores the federal securities law status of financial interests in for-profit social enterprise entities. When analyzed through the lens of the Securities Act of 1933 and the Securities Exchange Act of 1934, financial interests in social enterprise businesses raise both concerns and opportunities. Ultimately, the federal securities regulation status of interests in for-profit social enterprise ventures is important for choice-of-entity reasons (since the regulatory framework may impose different costs on interests in different structural business forms), for capital-structuring reasons within individual forms of entity, and for risk-management reasons at the entity level. In addition, an inquiry into the …

Economics Of Bankruptcy – Introduction, Edward R. Morrison

Faculty Scholarship

This essay surveys important contributions to the economics of bankruptcy. It is an introductory chapter for a forthcoming volume (from Edward Elgar Press) that compiles the work of legal scholars as well as economists working in the field of corporate finance. The essay begins with the foundational theories of Baird, Jackson, and Rea and then collects scholarly work extending, testing, or revising those theories. At various points I identify questions that merit further study, particularly empirical testing.

Adapting To The New Shareholder-Centric Reality, Edward B. Rock

All Faculty Scholarship

After more than eighty years of sustained attention, the master problem of U.S. corporate law—the separation of ownership and control—has mostly been brought under control. This resolution has occurred more through changes in market and corporate practices than through changes in the law. This Article explores how corporate law and practice are adapting to the new shareholder-centric reality that has emerged.

Because solving the shareholder–manager agency cost problem aggravates shareholder–creditor agency costs, I focus on implications for creditors. After considering how debt contracts, compensation arrangements, and governance structures can work together to limit shareholder–creditor agency costs, I turn to available …

Innovative Transactional Pedagogies, Joan Macleod Heminway, Michael A. Woronoff, Lyman P.Q. Johnson

Scholarly Articles

Our law schools are embracing in a more powerful way innovative transactional pedagogies that address not only theory, policy, and doctrine, but also legal skills. This transcribed panel discussion explores three of these pedagogies – teaching corporate finance as advanced contract drafting, teaching numeracy, and teaching substance and skill in contract drafting through the use of in-office meetings and analytical memos – and describes how they are being implemented in law teaching. The panel was part of the “Transactional Education: What’s Next?” conference hosted by the Emory University School of Law’s Center for Transactional Law and Practice on June 4-5, …

Innovative Transactional Pedagogies, Joan Macleod Heminway

Scholarly Works

Our law schools are embracing in a more powerful way innovative transactional pedagogies that address not only theory, policy, and doctrine, but also legal skills. This transcribed panel discussion explores three of these pedagogies – teaching corporate finance as advanced contract drafting, teaching numeracy, and teaching substance and skill in contract drafting through the use of in-office meetings and analytical memos – and describes how they are being implemented in law teaching. The panel was part of the “Transactional Education: What’s Next?” conference hosted by the Emory University School of Law’s Center for Transactional Law and Practice on June 4-5, …

The New Financial Deal: Understanding The Dodd-Frank Act And Its (Unintended) Consequences, David A. Skeel Jr.

All Faculty Scholarship

Contrary to rumors that the Dodd-Frank Act is an incoherent mess, its 2,319 pages have two very clear objectives: limiting the risk of the shadow banking system by more carefully regulating derivatives and large financial institutions; and limiting the damage caused by a financial institution’s failure. The new legislation also has a theme: government partnership with the largest Wall Street banks. The vision emerged almost by accident from the Bear Stearns and AIG bailouts of 2008 and the commandeering of the bankruptcy process to rescue Chrysler and GM in 2009. Its implications for derivatives regulation could prove beneficial: Dodd-Frank will …

Securities Intermediaries And The Separation Of Ownership From Control, Jill E. Fisch

All Faculty Scholarship

The Modern Corporation and Private Property highlighted the evolving separation of ownership and control in the public corporation and the effects of that separation on the allocation of power within the corporation. This essay explores the implications of intermediation for those themes. The article observes that intermediation, by decoupling economic ownership and decision-making authority within the shareholder, creates a second layer of agency issues beyond those identified by Berle and Means. These agency issues are an important consideration in the current debate over shareholder empowerment. The article concludes by considering the hypothetical shareholder construct implicit in the Berle and Means …