Law Commons^™

Allocating Business Profits For Tax Purposes: A Proposal To Adopt A Formulary Profit Split, Reuven S. Avi-Yonah, Kimberly A. Clausing, Michael C. Durst

Law & Economics Working Papers Archive: 2003-2009

The current system of taxing the income of multinational firms in the United States is flawed across multiple dimensions. The system provides an artificial tax incentive to earn income in low-tax countries, rewards aggressive tax planning, and is not compatible with any common metrics of efficiency. The U.S. system is also notoriously complex; observers are nearly unanimous in lamenting the heavy compliance burdens and the impracticality of coherent enforcement. Further, despite a corporate tax rate one standard deviation above that of other OECD countries, the U.S. corporate tax system raises relatively little revenue, due in part to the shifting of …

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

Cornell Law Faculty Working Papers

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 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 IPOs in the Sao 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 the stock market has …

An Overview Of Brazilian Corporate Governance, Bernard S. Black, Antonio Gledson De Carvalho, Érica Gorga

Cornell Law Faculty Publications

We provide the first detailed picture of firm-level corporate governance practices in an emerging market. We report on the corporate governance practices of Brazilian public companies, based primarily on an extensive 2005 survey of 116 companies. Most firms have a controlling shareholder or group. Board independence is an area of weakness. The boards of most Brazilian private firms are comprised entirely or almost entirely of insiders or representatives of the controlling family or group. Many firms have no independent directors. Financial disclosure is a second area of weakness. Only a minority of firms provide a statement of cash flows or …

Agency Costs, Charitable Trusts, And Corporate Control: Evidence From Hershey's Kiss-Off, Jonathan Klick, Robert H. Sitkoff

Faculty Scholarship at Penn Carey Law

In July 2002 the trustees of the Milton Hershey School Trust announced a plan to diversify the Trust’s investment portfolio by selling the Trust’s controlling interest in the Hershey Company. The Company’s stock jumped from $62.50 to $78.30 on news of the proposed sale. But the Pennsylvania Attorney General, who was then running for governor, opposed the sale on the ground that it would harm the local community. Shortly after the Attorney General obtained a preliminary injunction, the trustees abandoned the sale and the Company’s stock dropped to $65.00. Using standard event study methodology, we find that the sale announcement …

The Reform Of Corporate Taxation In The European Union, Nina Winkler

Cornell Law School Inter-University Graduate Student Conference Papers

The Commission of the European Communities is currently drafting a proposal for an EU Directive to implement the first comprehensive corporate tax strategy for the Internal Market. The adoption of a common consolidated corporate tax base for EU multinational enterprises is one of today’s most highly debated issues on Brussels’ political agenda. Since the reform would affect all international companies conducting business in the Internal Market, it should also be of great interest for non-EU corporate and tax law scholars and lawyers. The paper critically evaluates the key advantages and disadvantages of the concept of an EU consolidated tax base …

Stoneridge V. Scientific-Atlanta: Do Section 10(B) And Rule 10b-5 Require A Misstatement Or Omission?, Rodney D. Chrisman

Faculty Publications and Presentations

Stoneridge v. Scientific-Atlanta promises to be the most important securities litigation case to reach the Supreme Court since Central Bank of Denver. In this important case, Stoneridge presents the Supreme Court with the opportunity to clarify the application of its ruling in Central Bank to liability for secondary actors under section 10(b) and rule 10b-5. This Article points out that the fundamental question plaguing the lower courts since Central Bank and resulting in two circuit splits is whether section 10(b) requires that a secondary actor actually make a misstatement or omission in order to be held liable under the rule …

Five Decades Of Corporation Law - From Conglomeration To Equity Compensation, Richard A. Booth

Working Paper Series

This brief essay recounts developments in corporation law over the last fifty years. It begins with the rise of finance capitalism and the conglomerate corporation which was followed by the emergence of hostile takeovers in the late 1970s and 1980s. One of the key events in this saga was the February 1, 1983 decision by the Delaware Supreme Court in Weinberger v. UOP, Inc. that effectively permitted the at-will elimination of minority stockholders through cashout mergers. Takeovers were also facilitated by two major financial developments: (1) the growth of institutional investors coupled with the growing taste of diversified investors for …

Shareholder Democracy On Trial: International Perspective On The Effectiveness Of Increased Shareholder Power, Lisa Fairfax

Faculty Scholarship at Penn Carey Law

Shareholder democracy - efforts to increase shareholder power within the corporation - appears to have come of age, both within the United States and abroad. In the past few years, U.S. shareholders have worked to strengthen their voice within the corporation by seeking to remove perceived impediments to their voting authority. These impediments include classified boards, the plurality standard for board elections, and the inability to nominate directors on the corporation's ballot. Shareholders' efforts have also extended to seeking a voice on the compensation of corporate officers and directors. Advocates of shareholder democracy believe that such efforts are critical to …

Lender Control Liability Functional Examination: The Firm And Heuristics, Sergio A. Muro

Cornell Law School J.S.D. Student Research Papers

Lender control is criticized due to problems arising out of conflict of interests among different priority claimholders. Recently, it has been defended as a way to make the reorganization process more efficient. This paper builds on previous research on the theory of the firm to show that lender control generates inefficiencies even in situations where there is only one layer of legal claimants. Specifically, the paper demonstrates that departing from the nexus of explicit contracts paradigm, used by both previous critics and supporters of lender control, allows to understand other sources of lender control inefficiencies based on its inability to …

Corporate Governance, Enforcement, And Firm Value: Evidence From India, Dhammika Dharmapala, Vikramaditya Khanna

Law & Economics Working Papers Archive: 2003-2009

This paper analyzes the effects of corporate governance reforms and enforcement on stock market development and firm value, using a sequence of corporate governance reforms in India. Our results, taken together, present a strong case for a causal effect of the reforms on firm value, and also underscore the importance of enforcement. The reforms (referred to as Clause 49 of the listing agreement) were phased in over the period 2000-2003. A large number of firms were completely exempt from the new rules, and the complex criteria for the application of Clause 49 created considerable overlap in the characteristics of affected …

The Use Of The Corporate Monitor In Sec Enforcement Actions, Jennifer O'Hare

Working Paper Series

This paper addresses the SEC’s recent use of the corporate monitor as ancillary relief in its enforcement actions. The corporate monitor represents the latest example of the SEC seeking to shift its enforcement responsibilities to the public companies it regulates. Focusing on the role played by the corporate monitor imposed by the SEC in its enforcement action brought against WorldCom, this paper considers some of the dangers posed by the use of the corporate monitor, such as the whether the appointment of a corporate monitor constitutes impermissible overreaching by the SEC. The paper recognizes that the corporate monitor can be …

What Explains Insider Trading Restrictions? International Evidence On The Political Economy Of Insider Trading Regulation, Laura N. Beny

Law & Economics Working Papers Archive: 2003-2009

This article investigates the determinants of insider trading regulation across countries. The article presents a political economy analysis of such regulation that takes into account both private (distributional) and public (economic efficiency) considerations. The model cannot be tested directly because the relevant private preferences and social costs are unobservable. However, existing theories of capital market development suggest that various observable social factors can explain the diversity of insider trading policies across countries. In turn, these social factors should reveal the underlying preferences and social costs motivating such regulation.

The main finding, based on data from a cross section of countries …

Do Delaware Ceos Get Fired?, Murali Jagannathan, Adam C. Pritchard

Law & Economics Working Papers Archive: 2003-2009

Critics have charged that state competition in corporate law, which Delaware dominates, leads to a “race to the bottom” making management unaccountable. One metric of management accountability is forced CEO turnover, which we use to test the race to the bottom hypothesis. We compare California firms that choose to incorporate in California – the state with arguably the most restrictive corporate law rules – with those that incorporate in Delaware. We show that aspects of Delaware law attract firms that plan to grow through merger or acquisition and are vulnerable to shareholder lawsuits. We also document differences in corporate governance …

Introduction: Corporations And Their Communities, Robert N. Strassfeld

Faculty Publications

No abstract provided.

Making The Corporation Safe For Shareholder Democracy, Lisa Fairfax

Faculty Scholarship at Penn Carey Law

This article considers the effect that increased shareholder activism may have on non-shareholder corporate stakeholders such as employees and consumers. One of the most outspoken proponents of increased shareholder power has argued that such increased power could have negative repercussions for other corporate stakeholders because it would force directors to focus on profits without regard to other interests. This article critically examines that argument. The article acknowledges that increased shareholder power may benefit some stakeholders more than others, and may have some negative consequences. However, this article demonstrates that shareholders not only have interests that align with other stakeholders, but …

The Managerial Turn In Environmental Policy, Cary Coglianese

Faculty Scholarship at Penn Carey Law

No abstract provided.

On Beyond Calpers: Survey Evidence On The Developing Role Of Public Pension Funds In Corporate Governance, Stephen Choi, Jill E. Fisch

Faculty Scholarship at Penn Carey Law

No abstract provided.

Private Equity's Three Lessons For Agency Theory, William W. Bratton

Faculty Scholarship at Penn Carey Law

No abstract provided.

Shareholder Primacy's Corporatist Origins: Adolf Berle And The Modern Corporation, William W. Bratton, Michael L. Wachter

Faculty Scholarship at Penn Carey Law

No abstract provided.

Contracting Out Of Process, Contracting Out Of Corporate Accountability: An Argument Against Enforcement Of Pre-Dispute Limits On Process, Meredith R. Miller

Scholarly Works

There have been many well-articulated and convincing critiques aimed at mandatory arbitration. Indeed, presently before Congress is proposed legislation titled the Arbitration Fairness Act, that would ban pre-dispute arbitration in the consumer, franchise and employment contexts. However, maligned as the plaintiff bar's pro-lawsuit legislation, the Arbitration Fairness Act is predicted to have very little chance of enactment. Consequently, across varying industries, the pre-dispute arbitration regime endures unheedingly. Thus, this Article sets aside the arguments aimed generally at pre-dispute arbitration clauses and, instead, sets its sights on some of the terms that seem to arise in such clauses. The focus here …

Understanding The ‘Corporate’ In Corporate Social Responsibility, Barak D. Richman, Aaron K. Chatterji

Faculty Scholarship

No abstract provided.

The Fetishization Of Independence, Usha Rodrigues

Scholarly Works

According to conventional wisdom, a supermajority independent board of directors is the ideal corporate governance structure. Debate nevertheless continues: empirical evidence suggests that independent boards do not improve firm performance. Independence proponents respond that past studies reflect a flawed definition of independence.

Remarkably, neither side in the independence debate has looked to Delaware, the preeminent state source for corporate law. Comparing Delaware's notions of independence with those of Sarbanes-Oxley and its attendant reforms reveals two fundamentally different conceptions of independence. Sarbanes-Oxley equates independence with outsider status. An independent director is one who lacks financial ties to the corporation and is …

Do Investors In Controlled Firms Value Insider Trading Laws? International Evidence, Laura Nyantung Beny

Articles

This article characterizes insider trading as an agency problem in firms that have a controlling shareholder. Using a standard agency model of corporate value diversion through insider trading by the controlling shareholder, I derive testable hypotheses about the relationship between corporate value and insider trading laws among such firms. The article tests these hypotheses using firm-level cross-sectional data from twenty-seven developed countries. The results show that stringent insider trading laws and enforcement are associated with greater corporate valuation among the sample firms in common law countries, a result that is consistent with the claim that insider trading laws mitigate agency …

Back To The Future? The Potential Revival Of Territoriality, Reuven S. Avi-Yonah

Articles

Since 1994, the trend in the United States and other developed countries appears to be to reduce the scope of residence jurisdiction and increase the emphasis on source jurisdiction. If this trend continues, these countries are likely to move toward territoriality and decrease the emphasis on their CFC rules. In the author’s opinion, the reason for this trend is political and economic, not legal. It is part of tax competition, specifically the competition to be the headquarters jurisdiction for multinationals. The author also thinks, however, that it is not necessary to go down this road because the solution to the …

Stoneridge Investment Partners V. Scientific-Atlanta: The Political Economy Of Securities Class Action Reform, Adam C. Pritchard

Articles

I begin in Part II by explaining the wrong turn that the Court took in Basic. The Basic Court misunderstood the function of the reliance element and its relation to the question of damages. As a result, the securities class action regime established in Basic threatens draconian sanctions with limited deterrent benefit. Part III then summarizes the cases leading up to Stoneridge and analyzes the Court's reasoning in that case. In Stoneridge, like the decisions interpreting the reliance requirement of Rule 10b-5 that came before it, the Court emphasized policy implications. Sometimes policy implications are invoked to broaden the reach …