Corporate Finance Commons^™

Socially-Minded Investors And Corporate Behavior, Merritt B. Fox, Menesh S. Patel

Faculty Scholarship

Many equity investors are concerned with the world’s worsening social and environmental problems and are losing faith in the capacity of political institutions to respond. Corporate behavior is often contributing to these problems. Some investors, at least if fully informed as to costs and benefits involved, would favor corrective changes to corporate behavior even where that would lessen their investment returns. Two important questions arise: (1) given existing law, are such willing-to-sacrifice equity investors currently affecting firm behavior; and (2) should there be legal reform that makes firms more sensitive to these willing-to-sacrifice investors’ preferences? This Article seeks to answer …

Validating Valuation: How Statistical Learning Can Cabin Expert Discretion In Valuation Disputes, Andrew C. Baker, Jonah B. Gelbach, Eric L. Talley

Faculty Scholarship

This article challenges conventional methods used in financial valuation across transactional and litigation domains. We show that conventional valuation methods allow for considerable discretion, making it possible for each side’s experts to submit dramatically varying valuations simply by choosing among facially reasonable values of parameters that must be selected to carry out conventional valuations. We use large-scale empirical simulations powered by real-world data to demonstrate the scope of such discretion. We next consider several alternatives based on data-driven machine learning approaches, and show that they offer both approximately unbiased estimates of valuation and substantially reduced variability in valuation results. Consequently, …

How To Evaluate Non-Majority Control: What History And Statutes Tell Us—Part Ii: The Definitional Consensus, J. Travis Laster

Fordham Journal of Corporate & Financial Law

This Article and a companion piece explore the claim that the functional school was novel and anomalous. The companion article examines the approaches that courts have historically taken when evaluating non-majority control (the “Historical Article”). The Historical Article demonstrates that functionalism has been the dominant approach since at least 1912, while the formal school is a recent innovation. Its tenets emerged in 2006 and coalesced in a recognizable framework around 2014. The Historical Article identifies the core claims of the two schools. 

This Article examines statutory definitions of control. It focuses on statutory regimes that use the concept of control …

Trophy Assets, Aneil Kovvali

Articles

Rich people like to own things that make them look cool. When the thing in question is a car, house, or boat, the implications are limited. But sometimes very rich people own assets that are more important. Within media, Elon Musk acquired Twitter, Jeff Bezos ac-quired the Washington Post, and Patrick Soon-Shiong acquired the Los Angeles Times. There has also been a craze for aerospace: Musk with Space X, Bezos with Blue Origin, Richard Branson with Virgin Galactic, and going back further, Howard Hughes with Hughes Aircraft Company. It is often difficult to understand the behavior in purely finan-cial terms, …

Marketcrafters: The 100-Year Struggle To Shape The American Economy, Jay Nathan

Journal of Global Awareness

No abstract provided.

Investigating The Relationship Between Noun Classes And Plant Folk Taxonomy In Chasu Language Of Kilimanjaro Region In Tanzania, Peter Rabson Mziray

Journal of Humanities and Social Sciences

The current study investigates the relationship between noun classes and plant folk taxonomy in Chasu (G 22). The study focuses on two objectives: the first objective is to describe the plant folk taxonomy in Chasu and the second objective is to determine the relationship between noun classes and plant folk taxonomy in Chasu. Data were collected from rural villages in Same and Mwanga districts by using free listing, field interviews (jungle-walk-and-identify), and written texts containing Chasu plant names. The findings reveal that Chasu folk taxonomy reflects different ethnobotanical categories; including a unique beginner which is mmea/mimea ‘plant(s)’, and three life …

Too Many Mergers? The Golden Parachute As A Driver Of M&A Activity In The 21st Century, Jeffrey N. Gordon

Faculty Scholarship

This Article argues that the corporate governance regime in the United States has produced a level of mergers and acquisition activity greater than the social optimum because of the current version of the “golden parachute,” a super-bonus payoff to a target CEO. In the late nineteenth through the twentieth century, M&A activity was characterized by “waves” that reflected adaptations to changing external environment, whether the efficient production frontier, regulatory constraints, or capital market developments. Economically-motivated parties saw the opportunities in changing the boundaries of the firm; successful first-movers spawned imitators, hence a wave, which eventually subsided, often alongside deteriorating capital …

Sex & Startups, Jens Frankenreiter, Talia B. Gillis, Eric L. Talley

Faculty Scholarship

Private law offers a unique solution to the problem of long-term fiscal commitment. When Congress enacts a spending program that will take many years to reach fruition, there is a risk of a subsequent Congress or President cutting off funding in the interim. There is no escape from the problem within appropriations law itself. One solution, however, is to entrust private sector allies as vessels of long-term commitment. As a matter of political economy, that solution draws on policy-feedback theory. As a matter of law, the solution rests on a mechanism that Congress already uses but has not recognized its …

Capital Formation, The Sec, And Accredited Investors, Neal F. Newman, Lawrence J. Trautman, Brian Elzweig

Faculty Scholarship

Protecting the investing public, while simultaneously facilitating the efficient flow of capital needed by all new and growing businesses continues as a primary responsibility of the U.S. Securities and Exchange Commission (SEC). Enhancing the capital formation process is a necessary step in the creation of jobs and growth of any economy. Central to the SEC’s regulatory schematic is the proposition that some particularly sophisticated and wealthy investors require less protection than those with less knowledge, experience, and resources. During December 2023, for just the third time, the SEC staff issued a report examining the status of the natural person accredited …

Vice Capital, Andrew K. Jennings, Kimberly D. Krawiec

Faculty Articles

Academic and market interest in environmental, social, and governance (ESG) investing has grown markedly in recent years. Although less prominent, a substantial literature also explores whether “sin pays” in the public capital markets. This literature’s underlying theory is that social norms discourage the funding of businesses that promote vice. According to this theory, some investors—particularly institutions sensitive to social norms, such as pension funds and foundations—will shun vice investments. A consequence of this aversion is a “vice premium” for those investors who will invest in such companies. Largely unexplored, however, is what industries or business models qualify as “vice,” how …

Alternatives To Delaware? Evaluating Corporate Law In Nevada, Texas, And Wyoming, Joseph Landau, Bailey Swartz, Anthony Rickey, Robert Ragazzo, Benjamin Edwards, George A. Mocsary

Fordham Journal of Corporate & Financial Law

No abstract provided.

Corporate Law As Decolonization, Martin W. Sybblis

Faculty Articles

After centuries of colonial subordination, Black and Brown former colonies are still fighting to achieve the fruits of decolonization. The traditional theory is that former colonies will emerge from the colonial period with the legal mandate and international recognition needed to chart their own futures. But, for those Black and Brown British colonies that achieved political independence, it became clear that, without economic strength to care for their societies, legal separation could not deliver on its promise of freedom from subordination. This Article argues that investments in corporate law innovations by some jurisdictions, such as Bermuda, the British Virgin Islands, …

Expanding Mfw: Delaware Law Should Offer A Business Judgment Rule Safe Harbor For All Conflicted Controller Transactions, Alex Lindsey

Fordham Journal of Corporate & Financial Law

While courts usually defer to a board’s business decisions under the business judgment rule, courts will apply a much less deferential standard of review due to loyalty concerns if a conflicted controller is involved in a business decision such as a merger. However, in Kahn v. M & F Worldwide (“MFW”) when a squeeze out merger was challenged by a minority stockholder, the Delaware Supreme Court reviewed the transaction under the deferential business judgment rule standard because the Court found that the structure of the transaction neutralized the controller loyalty concerns. Building on this reasoning, the Court developed a checklist …

Initiation Payments, Scott Hirst

Faculty Scholarship

Many of the central discussions in corporate governance, including those regarding proxy contests, shareholder proposals, and other activism or stewardship, can be understood as a single question: Is there under-initiation of corporate changes that investors would collectively prefer?

This Article sheds light on this question in three ways. First, the Article proposes a theory of investor initiation, which explains the hypothesis that there is under-initiation of collectively-preferred corporate change by investors. Even though investors collectively prefer that certain corporate changes take place, the costs to any individual investor from initiating such changes through high-cost proxy contests, or even low-cost shareholder …

Corporate Governance And The Audit Function In Jordan And The Uk: A Comparative Perspective, Bashar Malkawi

Global Business Law Review

Superior corporate governance forms the bedrock of a prosperous economy. An integral component of outstanding corporate governance is the role of transparent, accurate and freely available information with respect to a company’s books and records. Numerous stakeholders including current and potential investors, business partners, employees, regulators and the public, rely on the integrity of the financial reporting. The law on external auditors in Jordan has undergone significant improvement, yet substantial gaps exist between current law and best practices. The Article focuses on the role of the auditor in ensuring superior corporate governance. The goal of this Article is to assess …

Money Creation And Bank Clearing, Nadav Orian Peer

Fordham Journal of Corporate & Financial Law

Like many other countries, the U.S. money supply consists primarily of deposits created by private commercial banks. How we understand bank money creation matters enormously. We are currently witnessing a debate between two competing understandings. On the one hand, a long-standing conventional view argues that bank money creation originates in individual market transactions. Based on this understanding, the conventional view narrowly limits the scope of banking regulation to market failure correction. On the other hand, authors in a new legal literature emphasize the public aspects of bank money creation, characterizing it as a “public franchise,” a “public-private partnership,” and part …

The Exit Theory Of Judicial Appraisal, William J. Carney, Keith Sharfman

Fordham Journal of Corporate & Financial Law

For many years, we and other commentators have observed the problem with allowing judges wide discretion to fashion appraisal awards to dissenting shareholders based on widely divergent, expert valuation evidence submitted by the litigating parties. The results of this discretionary approach to valuation have been to make appraisal litigation less predictable and therefore more costly and likely. While this has been beneficial to professionals who profit from corporate valuation litigation, it has been harmful to shareholders, making deals costlier and less likely to be completed.

In this Article, we propose to end the problem of discretionary judicial valuation by tracing …

How Much Do Investors Care About Social Responsibility?, Scott Hirst, Kobi Kastiel, Tamar Kricheli-Katz

Faculty Scholarship

Perhaps the most important corporate law debate over the last several years concerns whether directors and executives should manage the corporation to maximize value for investors or also take into account the interests of other stakeholders and society. But, do investors themselves wish to maximize returns, or are they willing to forgo returns for social purposes? And more broadly, do market participants, such as investors and consumers, differ from donors in the ways in which they prioritize monetary gains and the promotion of social goals?

This project attempts to answer these questions with evidence from an experiment conducted with 279 …

Side Letter Governance, Elisabeth De Fontenay, Yaron Nili

Faculty Scholarship

A standard feature of the private equity industry, “side letters” are confidential agreements between the sponsor and individual investors that give the latter special rights, beyond those that apply to other investors in the private equity fund. Yet side letters have become a flashpoint for prominent critics of the industry, who argue that they allow private equity sponsors to benefit their favored investors at the expense of smaller, less sophisticated ones. Others have argued that, to the contrary, side letters are merely an efficient means of price discrimination—charging different prices to different investors, according to their willingness to pay—a practice …

Corporate Governance And Risk-Taking: A Statistical Approach, Steven L. Schwarcz

Faculty Scholarship

Because prudent corporate governance often requires managers to take risks based on statistically expected outcomes, corporate failures that have a small but finite chance of occurring cannot always be prevented. This Article makes three related claims about risk-taking in corporate governance.

This Article’s first claim is that managers should not automatically be presumed to be at fault for corporate failures that result from risk-taking decisions based on statistical methodologies that reasonably justify the decisions ex ante. Conceptually, the business judgment rule should protect corporate managers for engaging in a reasonable decision-making process, including one that is statistically based. Jurisdictionally, however, …

An Automation Tax- Adopt With Caution, Vincent Ooi

Research Collection Yong Pung How School Of Law

The post highlights three main issues that may result from the rapid and widespread automation of jobs: 1) declining tax revenues; 2) inequitable distribution of gains and losses from automation; and 3) social costs of job displacement, such as social support and retraining programmes for displaced workers.An automation tax may be imposed on a temporary basis to manage (slow) the rate of displacement of workers due to the adoption of automation technologies, but should not be a permanent feature. Otherwise, there will be a risk of loss of competitiveness in the long-term, possibly resulting in even greater economic harm.One main …

New Assets, (Largely) Same Old Rules: The Taxation Of Digital Tokens, Vincent Ooi

Research Collection Yong Pung How School Of Law

In this blog post, I highlight the fact that across jurisdictions, tax provisions specifically drafted to address the taxation of digital tokens are still quite rare, meaning that existing orthodox tax rules will have to be applied. However, care must be taken when applying tax provisions and one must be aware of the limits of "reasoning by analogy".Some tax provisions make reference to specific assets or asset classes and it cannot be assumed that digital tokens which look very similar to these assets will inevitably fall under those provisions. For example, no matter how much a digital payment token looks …

Misreading Menetti: The Case Does Not Help You Avoid Liability For Your Own Fraud, Val D. Ricks

St. Mary's Law Journal

Several decades ago, an incorrect legal idea surfaced in Texas jurisprudence: that business entity actors are immune from liability for fraud that they themselves commit, as if the entity is solely responsible. Though the Supreme Court of Texas has rejected that result several times, it keeps coming back. The most recent manifestation is as a construction of Texas’s unique veil-piercing statute. Many lawyers have suggested that this view of the veil-piercing statute originated in Menetti v. Chavers, a San Antonio Court of Appeals case decided in 1998. Menetti has in fact played a prominent role in the movement to …

Taking Corwin Seriously, Itai Fiegenbaum

Lewis & Clark Law Review

Corporate law’s most important development is founded on a misunderstanding of the channels and consequences of shareholder empowerment. The Article’s title references the seminal Delaware Supreme Court decision that ruled that a positive shareholder vote effectively insulates a friendly sale from judicial oversight. Central to Corwin’s reasoning is the notion that the shareholder vote provides an effective restraint against insider overreaching. Yet every deal that includes a premium over the market price is assured of shareholder approval. The doctrinal lynchpin’s real-life insignificance exposes a baffling inconsistency in contemporary takeover jurisprudence.

This Articles makes two novel contributions to the bourgeoning scholarship …

Enabling Esg Accountability: Focusing On The Corporate Enterprise, Rachel Brewster

Faculty Scholarship

Environmental, social, and governance accountability for companies has become an important topic in popular and academic debate in modern society. The idea that corporations should have ESG goals has been embraced by major investment companies, employees, and many corporations themselves. Yet, less attention has been focused on how corporate enterprise law—which governs how corporations structure their relationships between parent corporations and their subsidiaries—creates or contributes to the ESG concerns that the public has with corporations in the first place. Modern enterprise law allows corporations, particularly those operating across national borders, to use their subsidiaries to avoid responsibility for their public …

The Corporate Governance Gap, Kobi Kastiel, Yaron Nili

Faculty Scholarship

A reliable system of corporate governance is considered an important requirement for the long-term success of public companies and for the good of society at large. After decades of research and policy advocacy, there is a growing sense that corporations are finally nearing the promised land: boards of public corporations seem more diverse, large investors seem more engaged, and directors seem more accountable than ever. But is this perception accurate? While many large, high-profile companies tend to serve as role models of desirable governance practices, the picture of corporate governance—as this Article reveals—is considerably different in the far corners of …

Donor-Advised Funds Can Make A Meaningful Impact In Asia, Hang Wu Tang

Research Collection Yong Pung How School Of Law

Such funds give donors more say in the philanthropic process, and can lead to donors being tipped off about underfunded causes. These funds also make it possible for non-millionaires to do their bit.

Potential Competition And Antitrust Analysis: Monopoly Profits Exceed Duopoly Profits, Steven C. Salop

Georgetown Law Faculty Publications and Other Works

This short note prepared for an OECD meeting in June 2021 examines several antitrust issues involving analysis of potential competition. While the analysis is not new, it is still useful to collect them together in a unified fashion to show how they are related. In this regard, all the analysis and conclusions flow from the overarching (and obvious) points that exclusionary conduct and agreements that maintain monopoly power very often harm consumers, and that monopoly profits typically exceed the combined duopoly profits earned by the dominant firm and the entrant, if there is successful entry. While this is not inevitably …

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 …

The Giant Shadow Of Corporate Gadflies, Kobi Kastiel, Yaron Nili

Faculty Scholarship

Modern-day shareholders influence corporate America more than ever before. From demanding greater accountability of executives to lobbying for a variety of social and environmental policies, shareholders today have the power to alter how American companies are run. Amazingly, a small group of individual shareholders wields unprecedented power to set corporate agendas and stands at the epicenter of our contemporary corporate governance ecosystem. In fact, the power of these individuals, known as “corporate gadflies,” continues to rise.

Corporate gadflies present a puzzling reality. Although public corporations in the United States are increasingly owned by large institutional investors, much of their corporate …