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2018

Singapore Management University

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Re-Examining The Law And Economics Of The Business Judgment Rule: Notes For Its Implementation In Non-Us Jurisdictions, Aurelio Gurrea-Martinez Jan 2018

Re-Examining The Law And Economics Of The Business Judgment Rule: Notes For Its Implementation In Non-Us Jurisdictions, Aurelio Gurrea-Martinez

Research Collection School Of Law

The business judgment rule, as it has been traditionally understood, seems to be based on three underlying assumptions that make this rule economically desirable. First, directors are subject to a credible threat of being sued for a breach of the duty of care. Second, the primary role of the corporation is to maximise shareholder value. Third, shareholders want the directors to pursue those investment projects with the highest net present value regardless of their volatility. This article challenges these assumptions and argues that the business judgment rule might not be desirable in some jurisdictions outside the United States and even ...