Social and Behavioral Sciences Commons^™

Puzzles In Controlling Shareholder Regimes And China: Shareholder Primacy And (Quasi) Monopoly, Sang Yop Kang

Sang Yop Kang

Professor Mark Roe explained that the shareholder wealth maximization norm (“the norm”) is not fit for a country with a (quasi) monopoly, because the norm encourages managers to maximize monopoly rents, to the detriment of the national economy. This Article provides new findings and counter-intuitive arguments as to the tension created by the norm and (quasi) monopoly by exploring three key corporate governance concepts that Roe did not examine—(1) “controlling minority structure” (CMS), where dominant shareholders hold a fractional ownership in their controlled-corporations, (2) “tunneling” (i.e., illicit transfer of corporate wealth to controlling shareholders), and (3) Chinese state-owned enterprises (SOEs). …

An Approach To The Regulation Of Spanish Banking Foundations, Miguel Martínez

Miguel Martínez

The purpose of this paper is to analyze the legal framework governing banking foundations as they have been regulated by Spanish Act 26/2013, of December 27th, on savings banks and banking foundations. Title 2 of this regulation addresses a construct that is groundbreaking for the Spanish legal system, still of paramount importance for the entire financial system insofar as these foundations become the leading players behind certain banking institutions given the high interest that foundations hold in the share capital of such institutions.

Public Actors In Private Markets: Toward A Developmental Finance State, Robert Hockett, Saule Omarova

Saule T. Omarova

The recent financial crisis brought into sharp relief fundamental questions about the social function and purpose of the financial system, including its relation to the “real” economy. This Article argues that, to answer these questions, we must recapture a distinctively American view of the proper relations among state, financial market, and development. This programmatic vision – captured in what we call a “developmental finance state” – is based on three key propositions: (1) that economic and social development is not an “end-state” but a continuing national policy priority; (2) that the modalities of finance are the most potent means of …

Avenues To Foreign Investment In China’S Shipping Industry—Have Lease Financing Arrangements And The Free Trade Zones Opened Markets For Foreign Non-Bank Investment?, Rick Beaumont

Rick Beaumont

No abstract provided.

The Moral Undercurrent Beneath The Regulatory Regime Of Investor Protection, Huhnkie Lee

Huhnkie Lee

No abstract provided.

Discriminatory Internal Taxation In The European Union: The Power Of The European Court Of Justice To Limit The Tax Sovereignty Of Member-States Under Article 110 Of The Tfeu, Jarrod Tudor

Jarrod Tudor

Protectionism can come in a variety of methods including the use of internal taxation policies that discriminate against imports making those imports more expensive on the domestic market and thus favoring domestically-produced goods. Discriminatory taxation policies have been developed by member-states to mask protectionism by distinguishing products based on import status, product similarity, product life cycle, consumption, tax collection practices, transportation charges, and state aid. The Framers of the Treaty on the Functioning of the European Union (TFEU) wrote Article 110 with the objective in mind to prohibit internal taxation policies from discriminating against goods in made in other member-states. …

Law, Fugitive Capital, And Karl Polanyi's The Great Transformation, Walter J. Kendall Lll

Walter J. Kendall lll

No abstract provided.

Optimized Theft: Why Some Controlling Shareholders “Generously” Expropriate From Minority Shareholders, Sang Yop Kang

Sang Yop Kang

Although controlling shareholder agency problems have been well studied so far, many questions still remain unanswered. In particular, an important puzzle in a bad-law jurisdiction is: why some controlling shareholders (“roving controllers”) loot the entire corporate assets at once, and why others (“stationary controllers”) siphon a part of corporate assets on a continuous basis. To solve this conundrum, this Article provides analytical frameworks exploring the behaviors and motivations of controlling shareholders. To begin with, I reinterpret Olson’s political theory of “banditry” in the context of corporate governance in developing countries. Based on a new taxonomy of controlling shareholders (“roving controllers” …

Legal And Institutional Remedies For Middle East States Wishing To Develop And Increase Foreign Direct Investment, Griffin Weaver

Griffin Weaver

The cost to overhaul a legal system is astronomical. For example, before and after the fall of the Soviet Union in the 1980’s several states received billions of dollars in loans to help change their “legal systems” and make them more western friendly. A couple of these states were West Germany and Japan, which received roughly 1.5 billion and 2.4 billion USD in loans. Considering most of this money was given in the 1950’s, the value today is probably three times or more those amounts. Without this aid both states would have been unable to make the changes to their …

The Imf’S Reassessment Of Capital Controls After The 2008 Financial Crisis: Heresy Or Orthodoxy?, Philip J. Macfarlane

Philip J. MacFarlane

While the IMF allows countries to limit the flow of capital through the use of capital controls, it has since the 1980s discouraged this practice and instead promoted capital account liberalization as a means for developing countries to attract the foreign investment needed for economic growth. The 2008 financial crisis, however, prompted the IMF to reconsider this view and increasingly support the use of capital controls for countries that were vulnerable to the effects of volatile capital flows. In 2012, the IMF changed its official position on the use of capital controls from permitted but discouraged to accepted in certain …

Halliburton, Basic And Fraud On The Market: The Need For A New Paradigm, Charles W. Murdock

Charles W. Murdock

Summary: Halliburton, Basic and Fraud on the Market: The Need for a New Paradigm

If defrauded securities plaintiffs cannot bring a class-action lawsuit, there often will be no effective remedy since the amount at stake for individual plaintiffs is not sufficient to warrant the substantial costs of litigation. To surmount the problem of individualized reliance and establish commonality, federal courts for twenty-five years have been employing the Basic fraud-on-the-market theory which posits that, in an efficient market, investors rely on the integrity of the market price.

While class certification at one time was a matter of course, today it is …

Money From Syar’Iah Perspective, Anowar Zahid

Anowar Zahid

In history, paper money systems have always wound up with collapse and economic chaos. Today, the usage of fiat currency, a form of paper money and the correlate bank money has brought about wide spread hardships and sufferings upon many sectors of society and communities. Following in depth syari’ah analysis, the only conclusion that is possible is that fiat currency and bank money are illegal. They are, in reality, introduced through manipulative collaborations between governments and bank cartels, as they defy the long established sanction against riba’ (usury), operate at the advantage of a selected group in society to the …

Against Regulatory Displacement: An Institutional Analysis Of Financial Crises, Jonathan C. Lipson

Jonathan C. Lipson

This paper uses “institutional analysis”—the study of the relative capacities of markets, courts, and regulators—to make three claims about financial crises.

First, financial crises are increasingly a problem of “regulatory displacement.” Through the ad hoc rescues of 2008 and the Dodd-Frank reforms of 2010, regulators displace market and judicial processes that ordinarily prevent financial distress from becoming financial crises. Because regulators are vulnerable to capture by large financial services firms, however, they cannot address the pathologies that create crises: market concentration and complexity. Indeed, regulators may inadvertently aggravate these conditions through resolution tactics that consolidate firms, and the volume and …

The Law And Economics Of Microfinance, Katherine Helen Mary Hunt

Katherine Helen Mary Hunt

Financial inclusion may be jargon which appeals to international donors and academics, but the strategic implementation in developing countries is often based on international du jour priorities, such as microfinance. The topic of microfinance is highly debated in the academic literature, although little empirical work has been published. Further, no literature to date has considered microfinance from a law and economics perspective. This paper seeks to contribute to the gap in the literature by considering how microfinance has evolved to address the credit market failure, and how microfinance regulation should be designed to promote long term financial inclusion via financially …

The New Leadership Paradigm In Today’S Financial System: Foreign And Domestic Banking, Valencia Tamir Johnson Dr

Valencia T Johnson

This article discusses the important of new leadership paradigm in today’s financial system and the importance the growth of foreign banking and investment in the United States and abroad. The article provides approaches that would inspire and develop effective leadership within financial organizations (foreign and domestic banking activities among investments, competitiveness, and improving the financial industry).

Controlling Shareholders: Benevolent “King” Or Ruthless “Pirate”, Sang Yop Kang

Sang Yop Kang

Unfair self-dealing and expropriation of minority shareholders by a controlling shareholder are common business practices in developing countries (“bad-law countries”). Although controlling shareholder agency problems have been well studied so far, there are many questions unanswered in relation to behaviors and motivations of controlling shareholders. For example, a puzzle is that some controlling shareholders in bad-law countries voluntarily extract minority shareholders less than other controlling shareholders. Applying Mancur Olson’s framework of political theory of “banditry” to the context of corporate governance, this Article proposes that there are at least two categories of controlling shareholders. “Roving controllers” are dominant shareholders with …

Present At The Creation: Reflections On The Early Years Of The National Association Of Corporate Directors, Lawrence J. Trautman

Lawrence J. Trautman Sr.

Effective corporate governance is critical to the productive operation of the global economy and preservation of our way of life. Excellent governance execution is also required to achieve economic growth and robust job creation in any country. In the United States, the premier director membership organization is the National Association of Corporate Directors (NACD). Now over 36 years old, NACD plays a major role in fostering excellence in corporate governance in the United States and beyond. Over the past thirty-six years NACD has grown from a mere realization of the importance of corporate governance to become the only national membership …

Transaction Cost-Benefit Analysis, With Applications To Financial Regulation, D. Bruce Johnsen

D. Bruce Johnsen

As Coase convincingly showed, transaction costs inhibit the ability of market participants to achieve first-best outcomes. This paper proposes a novel and relatively simple alternative to traditional cost-benefit analysis when regulated parties face sufficiently low transaction costs that they can bargain directly or rely on competitive markets to set efficient terms of trade. In these settings, the only informational burdens financial market regulators need bear to assess corrective rules is to identify the relevant parties, the “good” they hope to exchange, and the transaction costs that inhibit them from maximizing joint gains from trade. A rule is justified only if …

The Stock Market Reaction To Class Action Filings Post Pslra, Mark S. Klock

Mark S Klock

Using a substantially larger sample than has been used before, and a sample that includes the Great Financial Crisis and its ensuing recession, I investigate the stock market reaction to securities class action filings following the enactment of the Private Securities Litigation Reform Act through the first quarter of 2012. I find that on average, even after adjusting for market downturns, there is a statistically significant negative abnormal return at the time of filing. There is also a statistically significant negative abnormal return during the weeks preceding the filing indicating that the market partially, but not fully, anticipates these filings. …

Janus Capital Group, Inc. V. First Derivative Traders: The Culmination Of The Supreme Court’S Evolution From Liberal To Reactionary In Rule 10b-5 Actions, Charles W. Murdock

Charles W. Murdock

“Political” decisions such as Citizens United and National Federation of Independent Business (“Obamacare”) reflect the reactionary bent of several Supreme Court justices. But this reactionary trend is discernible in other areas as well. With regard to Rule 10b-5, the Court has handed down a series of decisions that could be grouped into four trilogies. The article examines the trend over the past 40 years which has become increasingly conservative and finally reactionary.

The first trilogy was a liberal one, arguably overextending the scope of Rule 10b-5. This was followed by a conservative trilogy which put a brake on such extension, …

Neoliberalism And The Law: How Historical Materialism Can Illuminate Recent Governmental And Judicial Decision Making, Justin Schwartz

Justin Schwartz

Neoliberalism can be understood as the deregulation of the economy from political control by deliberate action or inaction of the state. As such it is both constituted by the law and deeply affects it. I show how the methods of historical materialism can illuminate this phenomenon in all three branches of the the U.S. government. Considering the example the global financial crisis of 2007-08 that began with the housing bubble developing from trade in unregulated and overvalued mortgage backed securities, I show how the repeal of the Glass-Steagall Act, which established a firewall between commercial and investment banking, allowed this …

Rise Of The Intercontinentalexchange And Implications Of Its Merger With Nyse Euronext, Latoya C. Brown

Latoya C. Brown, Esq.

This paper examines the impending merger between the IntercontinentalExchange (ICE) and NYSE Euronext against the backdrop of the current structure of the global financial services industry. The paper concludes that the merger embodies what the financial services industry is becoming and captures the model that will allow exchanges to remain competitive in today’s marketplace: mega-exchanges with broader asset classes and electronic platforms. As technology and globalization threaten their vitality, exchanges will need to continue reinventing and adapting. Increasingly over the last decade they have done so by merging and by moving, at least a part of, their operations on screen. …

Implementing Dodd-Frank: A Review Of The Cftc‟S Rulemaking Process: Testimony, Michael Greenberger

Michael Greenberger

The Relationship of Unregulated OTC Derivatives to the Meltdown. It is now accepted wisdom that it was the non-transparent, poorly capitalized, and almost wholly unregulated over-the-counter (“OTC”) derivatives market that lit the fuse that exploded the highly vulnerable worldwide economy in the fall of 2008. Because tens of trillions of dollars of these financial products were pegged to the economic performance of an overheated and highly inflated housing market, the sudden collapse of that market triggered under-capitalized or non-capitalized OTC derivative guarantees of the subprime housing investments. Moreover, the many undercapitalized insurers of that collapsing market had other multi-trillion dollar …

Resolving Large, Complex Financial Firms, Thomas Fitzpatrick, Mark Greenlee, James Thomson

James B Thomson

How to best manage the failure of systemically important fi nancial fi rms was the theme of a recent conference at which the latest research on the issue was presented. Here we summarize that research, the discussions that it sparked, and the areas where considerable work remains.

How Well Does Bankruptcy Work When Large Financial Firms Fail? Some Lessons From Lehman Brothers, Thomas Fitzpatrick, James Thomson

James B Thomson

There is disagreement about whether large and complex financial institutions should be allowed to use U.S. bankruptcy law to reorganize when they get into financial difficulty. We look at the Lehman example for lessons about whether bankruptcy law might be a better alternative to bailouts or to resolution under the Dodd-Frank Act’s orderly liquidation authority. We find that there is no clear evidence that bankruptcy law is insufficient to handle the resolution of large complex financial firms.

Restoring The Natural Law: Copyright As Labor And Possession, Alfred C. Yen

Alfred C. Yen

In this Article, Professor Yen explores the problems associated with viewing copyright solely as a tool for achieving economic efficiency and advocates for the restoration of natural law to copyright jurisprudence. The Article demonstrates that economics has not been solely responsible for copyright’s development and basic structure, but has rather developed along lines suggested by neutral law, despite modern copyright jurisprudence. The Article considers the consequences of extinguishing copyright’s natural law facets in favor of the blind pursuit of efficiency and concludes by exploring the implications of restoring natural law thinking to copyright jurisprudence.

Justice, The Bretton Woods Institutions And The Problem Of Inequality, Frank J. Garcia

Frank J. Garcia

The Bretton Woods Institutions are, together with the WTO, the preeminent international institutions devoted to managing international economic relations. This mandate puts them squarely in the center of the debate concerning development, inequality and global justice. While the normative analysis of the WTO is gaining momentum, the systematic normative evaluation of the World Bank and the International Monetary Fund is comparatively less developed. This essay aims to contribute to that nascent inquiry. How might global justice criteria apply to the ideology and operations of the Bank and Fund? Political theory offers an abundance of perspectives from which to conduct such …

The Marginalist Revolution In Corporate Finance: 1880-1965, Herbert J. Hovenkamp

All Faculty Scholarship

During the late nineteenth and early twentieth centuries fundamental changes in economic thought revolutionized the theory of corporate finance, leading to changes in its legal regulation. The changes were massive, and this branch of financial analysis and law became virtually unrecognizable to those who had practiced it earlier. The source of this revision was the marginalist, or neoclassical, revolution in economic thought. The classical theory had seen corporate finance as an historical, relatively self-executing inquiry based on the classical theory of value and administered by common law courts. By contrast, neoclassical value theory was forward looking and as a result …

Implementing Dodd-Frank: A Review Of The Cftc‟S Rulemaking Process: Testimony, Michael Greenberger

Congressional Testimony

The Relationship of Unregulated OTC Derivatives to the Meltdown. It is now accepted wisdom that it was the non-transparent, poorly capitalized, and almost wholly unregulated over-the-counter (“OTC”) derivatives market that lit the fuse that exploded the highly vulnerable worldwide economy in the fall of 2008. Because tens of trillions of dollars of these financial products were pegged to the economic performance of an overheated and highly inflated housing market, the sudden collapse of that market triggered under-capitalized or non-capitalized OTC derivative guarantees of the subprime housing investments. Moreover, the many undercapitalized insurers of that collapsing market had other multi-trillion dollar …

Neo-Brandeisianism And The New Deal: Adolf A. Berle, Jr., William O. Douglas, And The Problem Of Corporate Finance In The 1930s, Jessica Wang

Seattle University Law Review

This essay revisits Adolf A. Berle, Jr. and The Modern Corporation and Private Property by focusing on the triangle of Berle, Louis D. Brandeis, and William O. Douglas in order to examine some of the underlying assumptions about law, economics, and the nature of modern society behind securities regulation and corporate finance in the 1930s. I explore Douglas and Berle’s academic and political relationship, the conceptual underpinnings of Brandeis, Berle, and Douglas’s critiques of modern finance, and the ways in which the two younger men—Berle and Douglas—ultimately departed from their role model, Brandeis.