Securities Law Commons^™

The Macroprudential Turn: From Institutional 'Safety And Soundness' To Systematic 'Financial Stability' In Financial Supervision, Robert C. Hockett

Cornell Law Faculty Publications

Since the global financial dramas of 2008-09, authorities on financial regulation have come increasingly to counsel the inclusion of macroprudential policy instruments in the standard ‘toolkit’ of finance-regulatory measures employed by financial supervisors. The hallmark of this perspective is its focus not simply on the safety and soundness of individual financial institutions, as is characteristic of the traditional ‘microprudential’ perspective, but also on certain structural features of financial systems that can imperil such systems as wholes. Systemic ‘financial stability’ thus comes to supplement, though not to supplant, institutional ‘safety and soundness’ as a regulatory desideratum.

The move from primarily micro- …

Lawyers And Fools: Lawyer-Directors In Public Corporations, Lubomir P. Litov, Simone M. Sepe, Charles K. Whitehead

Cornell Law Faculty Publications

The accepted wisdom—that a lawyer who becomes a corporate director has a fool for a client—is outdated. The benefits of lawyer-directors in today’s world significantly outweigh the costs. Beyond monitoring, they help manage litigation and regulation, as well as structure compensation to align CEO and shareholder interests. The results have been an average 9.5% increase in firm value and an almost doubling in the percentage of public companies with lawyer-directors.

This Article is the first to analyze the rise of lawyer-directors. It makes a variety of other empirical contributions, each of which is statistically significant and large in magnitude. First, …

The Shareholder Value Myth, Lynn A. Stout

Cornell Law Faculty Publications

No abstract provided.

On The Rise Of Shareholder Primacy, Signs Of Its Fall, And The Return Of Managerialism (In The Closet), Lynn A. Stout

Cornell Law Faculty Publications

No abstract provided.

Uncertainty, Dangerous Optimism, And Speculation: An Inquiry Into Some Limits Of Democratic Governance, Lynn A. Stout

Cornell Law Faculty Publications

People are often optimistic. Nearly fifty percent of marriages end in divorce, but one survey found that 100 percent of individuals planning to get married believed they would never get divorced. Most people think they drive better than the average driver, and at one university, ninety-four percent of professors placed themselves in the top fifty percent in terms of teaching skills. We often seem to think we are like the youth of Garrison Keillor’s fictional hometown Lake Wobegon, where “all the children are above average.”

This is not always a bad thing. Optimism can be advantageous. Without optimism, Columbus might …

Derivatives And The Legal Origin Of The 2008 Credit Crisis, Lynn A. Stout

Cornell Law Faculty Publications

Experts still debate what caused the credit crisis of 2008. This Article argues that dubious honor belongs, first and foremost, to a little-known statute called the Commodities Futures Modernization Act of 2000 (CFMA). Put simply, the credit crisis was not primarily due to changes in the markets; it was due to changes in the law. In particular, the crisis was the direct and foreseeable (and in fact foreseen by the author and others) consequence of the CFMA’s sudden and wholesale removal of centuries-old legal constraints on speculative trading in over-the-counter (OTC) derivatives.

Derivative contracts are probabilistic bets on future events. …

Regulate Otc Derivatives By Deregulating Them, Lynn A. Stout

Cornell Law Faculty Publications

When credit markets froze up in the fall of 2008, many economists pronounced the crisis inexplicable and unforeseeable. Lawyers who specialize in financial regulation, and especially the small cadre who specialize in derivatives regulation, knew better.That's because the roots of the catastrophe lay not in changes in the markets, but changes in the law. In particular, the credit crisis can be traced to Congress's 2000 passage of the Commodity Futures Modernization Act, which radically altered the traditional legal approach to financial derivatives.

This shift in the legal treatment of financial derivatives has brought the banking system to its knees. The …

Changing The Paradigm Of Stock Ownership From Concentrated Towards Dispersed Ownership? Evidence From Brazil And Consequences For Emerging Countries, Érica Gorga

Cornell Law Faculty Publications

This paper analyzes micro-level dynamics of changes in ownership structures. It investigates a unique event: changes in ownership patterns currently taking place in Brazil. It builds upon empirical evidence to advance the theoretical understanding of how and why concentrated ownership structures can change towards dispersed ownership.

Commentators argue that the Brazilian capital markets are finally taking off.

The number of listed companies and Initial Public Offerings (IPOs) in the São Paulo Stock Exchange (Bovespa) has greatly increased. Firms are migrating to Bovespa's special listing segments, which require higher standards of corporate governance. Companies have sold control in the market, and …

How Deregulating Derivatives Led To Disaster, And Why Re-Regulating Them Can Prevent Another, Lynn A. Stout

Cornell Law Faculty Publications

When credit markets froze up in the fall of 2008, many economists pronounced the crisis both inexplicable and unforeseeable. That’s because they were economists, not lawyers.

Lawyers who specialize in financial regulation, and especially the small cadre who specialize in derivatives regulation, understood what went wrong. (Some even predicted it.) That’s because the roots of the catastrophe lay not in changes in the markets, but changes in the law. Perhaps the most important of those changes was the U.S. Congress’s decision to deregulate financial derivatives with the Commodity Futures Modernization Act (CFMA) of 2000.

Prior to 2000, off-exchange derivatives contracts …

Deconstructing Equity: Public Ownership, Agency Costs, And Complete Capital Markets, Charles K. Whitehead, Ronald J. Gilson

Cornell Law Faculty Publications

The traditional law and finance focus on agency costs presumes that the premise that diversified public shareholders are the cheapest risk bearers is immutable. In this Essay, we raise the possibility that changes in the capital markets have called this premise into question, drawn into sharp relief by the recent private equity wave in which the size and range of public companies being taken private expanded significantly. In brief, we argue that private owners, in increasingly complete markets, can transfer risk in discrete slices to counterparties who, in turn, can manage or otherwise diversify away those risks they choose to …

Ex Ante Choices Of Law And Forum: An Empirical Analysis Of Corporate Merger Agreements, Theodore Eisenberg, Geoffrey P. Miller

Cornell Law Faculty Publications

Legal scholars have focused much attention on the incorporation puzzle—why business corporations so heavily favor Delaware as the site of incorporation. This paper suggests that the focus on the incorporation decision overlooks a broader but intimately related set of questions. The choice of Delaware as a situs of incorporation is, effectively, a choice of law decision. A company electing to charter in Delaware selects Delaware law (and authorizes Delaware courts to adjudicate legal disputes) regarding the allocation of governance authority within the firm. In this sense, the incorporation decision is fundamentally similar to any setting in which a company selects …

Was Arthur Andersen Different? An Empirical Examination Of Major Accounting Firm Audits Of Large Clients, Theodore Eisenberg, Jonathan R. Macey

Cornell Law Faculty Publications

Enron and other corporate financial scandals focused attention on the accounting industry in general and on Arthur Andersen in particular. Part of the policy response to Enron, the criminal prosecution of Andersen eliminated one of the few major audit firms capable of auditing many large public corporations. This article explores whether Andersen’s performance, as measured by frequency of financial restatements, measurably differed from that of other large auditors. Financial restatements trigger significant negative market reactions and their frequency can be viewed as a measure of accounting performance. We analyze the financial restatement activity of approximately 1,000 large public firms from …

Legal And Ethical Duties Of Lawyers After Sarbanes-Oxley, Roger C. Cramton, George M. Cohen, Susan P. Koniak

Cornell Law Faculty Publications

No abstract provided.

Was Arthur Andersen Different? An Empirical Examination Of Major Accounting Firm Audits Of Large Clients, Theodore Eisenberg, Jonathan R. Macey

Cornell Law Faculty Publications

Enron and other corporate financial scandals focused attention on the accounting industry in general and on Arthur Andersen in particular. Part of the policy response to Enron, the criminal prosecution of Andersen eliminated one of the few major audit firms capable of auditing many large public corporations. This article explores whether Andersen's performance, as measured by frequency of financial restatements, measurably differed from that of other large auditors. Financial restatements trigger significant negative market reactions and their frequency can be viewed as a measure of accounting performance. We analyze the financial restatement activity of approximately 1,000 large public firms from …

The Petrochina Syndrome: Regulating Capital Markets In The Anti-Globalization Era, Stephen F. Diamond

Cornell Law Faculty Publications

No abstract provided.

Enron And The Corporate Lawyer: A Primer On Legal And Ethical Issues, Roger C. Cramton

Cornell Law Faculty Publications

The stunning collapse of Enron, coupled with the large number of accounting irregularities and apparent corporate fraud, have created a climate in which reform and improvement of the law governing corporate lawyers is underway. The ABA Task Force on Corporate Responsibility has issued a preliminary report that recommends promising changes in the rules of professional conduct. And, the Corporate Reform Act of 2002 has changed the landscape by authorizing the SEC to promulgate rules of professional conduct for securities lawyers and directing the SEC to issue a rule requiring securities lawyers to climb the corporate ladder to prevent or rectify …

The Investor Confidence Game, Lynn A. Stout

Cornell Law Faculty Publications

Academic discussions of securities policy often assume that investors are hyperrational and distrustful actors who do not need the protections of the securities laws to avoid being defrauded. The time has come to recognize the limitations of this assumption and to consider as well the possibility and implications of investor trust. Experienced policymakers and businesspeople (and certainly experienced con artists) have long known that trust is a potent force in explaining and manipulating investor behavior. They are right. They are right to believe that investor confidence-meaning investor trust-is important to the market. They are right to think that trust has …

Why The Law Hates Speculators: Regulation And Private Ordering In The Market For Otc Derivatives, Lynn A. Stout

Cornell Law Faculty Publications

A wide variety of statutory and common law doctrines in American law evidence hostility towards speculation. Conventional economic theory, however, generally views speculation as an efficient form of trading that shifts risk to those who can bear it most easily and improves the accuracy of market prices. This Article reconciles the apparent conflict between legal tradition and economic theory by explaining why some forms of speculative trading may be inefficient. It presents a heterogeneous expectations model of speculative trading that offers important insights into antispeculation laws in general, and the ongoing debate concerning over-the-counter (OTC) derivatives in particular.

Although trading …

Agreeing To Disagree Over Excessive Trading, Lynn A. Stout

Cornell Law Faculty Publications

No abstract provided.

Are Stock Markets Costly Casinos? Disagreement, Market Failure, And Securities Regulation, Lynn A. Stout

Cornell Law Faculty Publications

No abstract provided.

Are Takeover Premiums Really Premiums? Market Price, Fair Value, And Corporate Law, Lynn A. Stout

Cornell Law Faculty Publications

No abstract provided.