Law Commons^™

Cross-Monitoring And Corporate Governance, Joanna M. Shepherd, Frederick Tung, Albert H. Yoon

Faculty Scholarship

We take the view that corporate governance must involve more than corporate law. Despite corporate scholars' nearly exclusive focus on corporate law mechanisms for controlling managerial agency costs, shareholders are not the only constituency concerned with such costs. Given the thick web of firms' contractual commitments, it should not be a surprise that other financial claimants may also attempt to control agency costs in their contracts with the firm. We hypothesize that this cross-monitoring by other claimants has value for shareholders.

We examine bank loans for empirical evidence of the value of cross-monitoring. Our approach builds on prior empirical work …

Fuzzy Logic And Corporate Governance Theories, Z. Jill Barclift

Faculty Scholarship

Fuzzy logic is a theory that categorizes concepts or things belonging to more than one group. A methodology that explains how things function in multiple groups (not fully in one group or another) offers advantages when one definition or membership in a group accounts for belonging to multiple groups. A principal/agent model of corporate governance has some characterizations of fuzzy logic theory. The purpose of this article it to evaluate other models of corporate governance that account for the multi-agent role of senior officers of public companies and assess the accountability to the corporation. Corporate governance theorists continue to debate …

Court Of Law And Court Of Public Opinion: Symbiotic Regulation Of The Corporate Management Duty Of Care, Tamar Frankel

Faculty Scholarship

In In re Walt Disney Co. Derivative Litigation the Delaware court exonerated the defendants for their handling of the Ovitz Affair, and yet condemned them. It is a classic example of how a court of law can make law without making law. By an obiter dictum, the Chancellor established the facts of the case and footnoted the sources much like a treatise or a casebook, recounted the general principles of the law, used strong words to describe the defendants' behavior, delved into the moral and business judgment of the defendants, and assisted the market in judging and enforcing its best …

The Rise Of Independent Directors In The United States, 1950-2005: Of Shareholder Value And Stock Market Prices, Jeffrey N. Gordon

Faculty Scholarship

Between 1950 and 2005, the composition of large public company boards dramatically shifted towards independent directors, from approximately 20% independents to 75% independents. The standards for independence also became increasingly rigorous over the period. The available empirical evidence provides no convincing explanation for this change. This Article explains the trend in terms of two interrelated developments in U.S. political economy: first, the shift to shareholder value as the primary corporate objective; second, the greater informativeness of stock market prices. The overriding effect is to commit the firm to a shareholder wealth maximizing strategy as best measured by stock price performance. …

Classified Boards And Firm Value, Michael D. Frakes

Faculty Scholarship

Classified boards constitute one of the most potent takeover defenses for U.S. firms today. However, as with takeover defenses more generally, economic theory offers an ambiguous prediction as to the effect that classified boards have on bottom-line firm value. A resolution of this ambiguity will require sound and convincing empirical methodology. In an effort to address limitations in the existing empirical literature, this article approaches the relationship between corporate governance and firm value while taking various measures to account for unobserved sources of heterogeneity across firms. Using the instrumental variables model developed by Hausman and Taylor, I find evidence of …

Gap Filling In The Zone Of Insolvency, Frederick Tung

Faculty Scholarship

This paper was prepared for a symposium - Twilight in the Zone of Insolvency: Fiduciary Duty and the Creditors of Troubled Companies - at the University of Maryland School of Law.

Attacks on shareholder primacy have come from numerous quarters, arguing for expansion of the class of beneficiaries of directors' fiduciary duties. Regarding duties to creditors - the focus of this symposium - a long line of cases has recognized that once a firm is insolvent, creditors should be the primary beneficiaries of directors' fiduciary duties. Then in 1991, Chancellor Allen's famous discussion in Credit Lyonnais identified a special vicinity …

Law And Capitalism: What Corporate Crises Reveal About Legal Systems And Economic Development Around The World, Curtis J. Milhaupt, Katharina Pistor

Faculty Scholarship

This book explores the relationship between legal systems and economic development by examining, through a methodology we call the institutional autopsy, a series of high profile corporate governance crises around the world over the past six years. We begin by exposing hidden assumptions in the prevailing view on the relationship between law and markets, and provide a new analytical framework for understanding this question. Our framework moves away from the canonical distinction between common law and civil law regimes. It emphasizes the constant, iterative, rolling relationship between law and markets, and suggests that how a given country's legal system rolls …