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Corporate Finance

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Full-Text Articles in Law

Beyond Beholden, Da Lin Jan 2019

Beyond Beholden, Da Lin

Law Faculty Publications

Corporate law has long been concerned with director independence. In controlled companies, the conventional wisdom focuses on "beholdenness" as the main threat to independence. The prevailing theory argues that directors might feel pressured to reciprocate a past kindness from the controlling shareholder or fear retaliation. This Article argues that this conventional narrative is troublingly incomplete. I show that directors are also influenced by the prospect of rewards, or patronage, from the controller.

This Article is the first to identify controlling shareholder patronage as a systemic phenomenon and to explore how anticipation of future patronage can affect director behavior. It presents ...


Accurate Calculation Of Short-Swing Profits Under Section 16(B) Of The Securities Exchange Act Of 1934, Andrew Chin Jul 2017

Accurate Calculation Of Short-Swing Profits Under Section 16(B) Of The Securities Exchange Act Of 1934, Andrew Chin

Andrew Chin

No abstract provided.


Rethinking Corporate Governance For A Bondholder Financed, Systemically Risky World, Steven L. Schwarcz Mar 2017

Rethinking Corporate Governance For A Bondholder Financed, Systemically Risky World, Steven L. Schwarcz

William & Mary Law Review

This Article makes two arguments that, combined, demonstrate an important synergy: first, including bondholders in corporate governance could help to reduce systemic risk because bondholders are more risk averse than shareholders; second, corporate governance should include bondholders because bonds now dwarf equity as a source of corporate financing and bond prices are increasingly tied to firm performance.


A Machine Learning Classifier For Corporate Opportunity Waivers, Gabriel V. Rauterberg, Eric L. Talley Jan 2016

A Machine Learning Classifier For Corporate Opportunity Waivers, Gabriel V. Rauterberg, Eric L. Talley

Faculty Scholarship

Rauterberg & Talley (2017) develop a data set of “corporate opportunity waivers” (COWs) – significant contractual modifications of fiduciary duties – sampled from SEC filings. Part of their analysis utilizes a machine learning (ML) classifier to extend their data set beyond the hand-coded sample. Because the ML approach is likely unfamiliar to some readers, and in the light of its great potential across other areas of law and finance research, this note explains the basic components using a simple example, and it demonstrates strategies for calibrating and evaluating the classifier.


Law And Project Finance, Frederick Tung, Krishnamurthy Subramanian Jan 2014

Law And Project Finance, Frederick Tung, Krishnamurthy Subramanian

Faculty Scholarship

We investigate Project Finance as a private response to inefficiencies created by weak legal protection of outside investors. We offer a new illustration that law matters by demonstrating that for large investment projects, Project Finance provides a contractual and organizational substitute for investor protection laws. Project Finance accomplishes this by making cash flows verifiable through two mechanisms: (i) contractual arrangements made possible by structuring the project within a single, discrete entity legally separate from the sponsor; and (ii) private enforcement of these contracts through a network of project accounts that ensures lender control of project cash flows. Comparing bank loans ...


The Marginalist Revolution In Corporate Finance: 1880-1965, Herbert J. Hovenkamp Jul 2011

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

Faculty Scholarship at Penn Law

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 ...


The Federal Reserve We Need: It’S The Fed We Once Had, Timothy A. Canova Mar 2011

The Federal Reserve We Need: It’S The Fed We Once Had, Timothy A. Canova

Timothy A. Canova

This article considers the empirical record of the 1942-1951 period of Federal Reserve history when the Fed was more politically accountable and more independent of private financial interests. During the 1940s, federal spending was nearly twice as high as today, and federal borrowing was more than three times higher. Yet, from 1942 to 1951, the Federal Reserve was directed by the White House and Treasury to peg interest rates at 3/8 of one percent on short-term Treasury borrowing and 2.0 to 2.5 percent on long-term borrowing. The U.S. economy grew at a real annual rate of ...


At The Conjunction Of Love And Money: Comment On Julie A. Nelson, Does Profit-Seeking Rule Out Love? Evidence (Or Not) From Economics And Law, William W. Bratton Jan 2011

At The Conjunction Of Love And Money: Comment On Julie A. Nelson, Does Profit-Seeking Rule Out Love? Evidence (Or Not) From Economics And Law, William W. Bratton

Faculty Scholarship at Penn Law

No abstract provided.


The Influence Of Law And Economics On Law And Accounting: Two Steps Forward, One Step Back, Lawrence A. Cunningham Jan 2011

The Influence Of Law And Economics On Law And Accounting: Two Steps Forward, One Step Back, Lawrence A. Cunningham

GW Law Faculty Publications & Other Works

Theory can have profound effects on practice, some intended and desirable, others unintended and undesirable. That's the story of the influence the field of law and economics has had on the domain of law and accounting. That influence comes primarily from agency theory and modern finance theory, specifically through the efficient capital market hypothesis and capital asset pricing model. Those theories have forged considerable change in federal securities regulation, accounting standard setting, state corporation law, and financial auditing. Affected areas include the nature of disclosure, the measure of financial concepts, the limits of shareholder protection, and the scope of ...


A Comprehensive Theory Of Deal Structure: Understanding How Transactional Structure Creates Value, Michael S. Knoll, Daniel M. G. Raff Jan 2010

A Comprehensive Theory Of Deal Structure: Understanding How Transactional Structure Creates Value, Michael S. Knoll, Daniel M. G. Raff

Faculty Scholarship at Penn Law

No abstract provided.


Government Investment In Banks: Creeping Nationalization Or Prudent, Temporary Aid, Lissa Lamkin Broome Jan 2009

Government Investment In Banks: Creeping Nationalization Or Prudent, Temporary Aid, Lissa Lamkin Broome

Faculty Publications

No abstract provided.


Private Equity's Three Lessons For Agency Theory, William W. Bratton Jan 2008

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

Faculty Scholarship at Penn Law

No abstract provided.


Shareholder Primacy's Corporatist Origins: Adolf Berle And The Modern Corporation, William W. Bratton, Michael L. Wachter Jan 2008

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

Faculty Scholarship at Penn Law

No abstract provided.


Private Standards, Public Governance: A New Look At The Financial Accounting Standards Board, William W. Bratton Jan 2007

Private Standards, Public Governance: A New Look At The Financial Accounting Standards Board, William W. Bratton

Faculty Scholarship at Penn Law

The Financial Accounting Standards Board (the “FASB”) presents a puzzle: How has this private standard setter managed simultaneously (1) to remain independent, (2) to achieve institutional stability and legitimacy, and (3) to operate in a politicized context in the teeth of op-position from its own constituents? This Article looks to governance design to account for this institutional success. The FASB’s founders made a strategic choice to create a regulatory agency that sought independence rather than political responsiveness. The FASB also set out a coherent theory of accounting, the “Conceptual Framework,” to contain and direct its decisions. The Conceptual Framework ...


Hedge Funds And Governance Targets, William W. Bratton Jan 2007

Hedge Funds And Governance Targets, William W. Bratton

Faculty Scholarship at Penn Law

Corporate governance interventions by hedge fund shareholders are triggering debates between advocates of management empowerment and advocates of aggressive monitoring by actors in the capital markets. This Article intervenes with an empirical question: What, based on the record so far, have the hedge funds actually done to their targets? Information has been collected on 130 domestic firms identified in the business press since 2002 as targets of activist hedge funds, including the funds’ demands, their tactics, and the results of their interventions for the targets’ governance and finance. The survey results show that the hedge funds have an enviable record ...


Shareholders, Creditors, And Directors’ Fiduciary Duties: A Law And Finance Approach, Moin A. Yahya, Remus D. Valsan Aug 2006

Shareholders, Creditors, And Directors’ Fiduciary Duties: A Law And Finance Approach, Moin A. Yahya, Remus D. Valsan

ExpressO

The debate surrounding fiduciary duties owed to creditors by directors, especially in the vicinity of insolvency, has resurfaced in light of two court decisions in Canada and the United States. In this paper, we contribute to the discussion by looking at the issue from a corporate finance perspective, where we utilize well-established theorems and results. We show that creditors are able to protect themselves by the use of covenants. While this idea has been reported extensively in previous discussions about fiduciary duties, we focus on studies that show the extent to which creditors use covenants to protect themselves against opportunistic ...


Managing Risk On A $25 Million Bet: Venture Capital, Agency Costs, And The False Dichotomy Of The Corporation, Robert P. Bartlett Iii May 2006

Managing Risk On A $25 Million Bet: Venture Capital, Agency Costs, And The False Dichotomy Of The Corporation, Robert P. Bartlett Iii

ExpressO

An implicit dichotomy of the corporation exists in legal scholarship. On one side of the dichotomy rests the publicly-held corporation suffering from a significant conflict of interest between its managers and dispersed shareholders; on the other side, the closely-held corporation plagued by inter-shareholder conflict.

This Article argues that understanding the agency problems that can exist within a firm demands a rejection of this traditional dichotomy and the theories of the firm built upon it. Using venture capital finance, this Article demonstrates for the first time how this dichotomy obscures how all firms - public and private - often face the same agency ...


The Fair Value Of Cornfields In Delaware Appraisal Law, Lawrence Hamermesh, Michael L. Wachter Oct 2005

The Fair Value Of Cornfields In Delaware Appraisal Law, Lawrence Hamermesh, Michael L. Wachter

Faculty Scholarship at Penn Law

The Delaware Supreme Court’s opinions in Weinberger and Technicolor have left a troublesome uncertainty in defining the proper approach to the valuation of corporate shares. That uncertainty – increasingly important as going private mergers become more frequent – can be resolved by a blend of financial and doctrinal analysis. The primary problem—the potential opportunism by controlling shareholders in timing going private mergers—can be addressed by a more complete understanding of corporate finance. The definition of fair value must include not only the present value of the firm’s existing assets, but also the future opportunities to reinvest free cash ...


The Academic Tournament Over Executive Compensation, William W. Bratton Jan 2005

The Academic Tournament Over Executive Compensation, William W. Bratton

Faculty Scholarship at Penn Law

No abstract provided.


The New Dividend Puzzle, William W. Bratton Jan 2005

The New Dividend Puzzle, William W. Bratton

Faculty Scholarship at Penn Law

No abstract provided.


Rules, Principles, And The Accounting Crisis In The United States, William W. Bratton Jan 2004

Rules, Principles, And The Accounting Crisis In The United States, William W. Bratton

Faculty Scholarship at Penn Law

The Sarbanes-Oxley Act and the Securities Exchange Commission move too quickly ·when they prod the Financial Accounting Standards Board, the standard setter for US GAAP, to move immediately to a principles-based system. Priorities respecting reform of corporate reporting in the US need to be ordered more carefully. Incentive problems impairing audit performance should be solved first through institutional reform insulating the audit from the negative impact of rent-seeking and solving adverse selection problems otherwise affecting audit practice. So long as auditor independence and management incentives respecting accounting treatments remain suspect. the US reporting system holds out no actor plausibly positioned ...


Shareholder Value And Auditor Independence, William W. Bratton Jan 2003

Shareholder Value And Auditor Independence, William W. Bratton

Faculty Scholarship at Penn Law

This Article questions the practice of framing problems concerning auditors’ professional responsibility inside a principal-agent paradigm. If professional independence is to be achieved, auditors cannot be enmeshed in agency relationships with the shareholders of their audit clients. As agents, the auditors by definition become subject to the principal’s control and cannot act independently. For the same reason, auditors’ duties should be neither articulated in the framework of corporate law fiduciary duty, nor conceived relationally at all. These assertions follow from an inquiry into the operative notion of the shareholder-beneficiary. The Article unpacks the notion of the shareholder and tells ...


Enron, Sarbanes-Oxley And Accounting: Rules Versus Principles Versus Rents, William W. Bratton Jan 2003

Enron, Sarbanes-Oxley And Accounting: Rules Versus Principles Versus Rents, William W. Bratton

Faculty Scholarship at Penn Law

No abstract provided.


Framing The Inquiry: The Social Impact Of Project Finance, Lissa Lamkin Broome Jan 2002

Framing The Inquiry: The Social Impact Of Project Finance, Lissa Lamkin Broome

Faculty Publications

No abstract provided.


Berle And Means Reconsidered At The Century's Turn, William W. Bratton Apr 2001

Berle And Means Reconsidered At The Century's Turn, William W. Bratton

Faculty Scholarship at Penn Law

No abstract provided.


Comparative Corporate Governance And The Theory Of The Firm: The Case Against Global Cross Reference, William W. Bratton, Joseph A. Mccahery Jan 1999

Comparative Corporate Governance And The Theory Of The Firm: The Case Against Global Cross Reference, William W. Bratton, Joseph A. Mccahery

Faculty Scholarship at Penn Law

Professors Bratton and McCahery take up the main questions addressed by the literature on comparative corporate governance: whether national governance systems can be expected to converge in the near future, and whether the focal point of that convergence will be a new, hybrid governance system comprised of the best practices drawn from different systems. This Article advances the view that neither global convergence that eliminates systemic differences nor the emergence of a hybrid best practice safely can be projected because each national governance system is a system to a significant extent. Each system, rather than consisting of a loose collection ...


Accurate Calculation Of Short-Swing Profits Under Section 16(B) Of The Securities Exchange Act Of 1934, Andrew Chin Jan 1997

Accurate Calculation Of Short-Swing Profits Under Section 16(B) Of The Securities Exchange Act Of 1934, Andrew Chin

Faculty Publications

No abstract provided.


An Inquiry Into The Efficiency Of The Limited Liability Company: Of Theory Of The Firm And Regulatory Competition, William W. Bratton, Joseph A. Mccahery Jan 1997

An Inquiry Into The Efficiency Of The Limited Liability Company: Of Theory Of The Firm And Regulatory Competition, William W. Bratton, Joseph A. Mccahery

Faculty Scholarship at Penn Law

No abstract provided.


The Role Of Convertible Securities In Corporate Finance, George W. Dent Jr. Jan 1996

The Role Of Convertible Securities In Corporate Finance, George W. Dent Jr.

Faculty Publications

This Article examines theories supporting the use of convertible secyrutues and finds them insufficient even for public companies, to which they are supposed to apply. They fare worse yet for private firms which use convertibles even more frequently. Indeed, no one theory explains all uses of convertibles. Convertibles can reduce agency costs by reconciling differences in risk aversion and diminishing managers' exploitation of investors, but they can also promote managers' interests at the expense of shareholders. The mix of factors varies from case to case. Thus, the role of convertibles proves complex and diverse. After describing convertible securities (part II ...


From Legitimacy To Logic: Reconstructing Proxy Regulation, Jill E. Fisch Jan 1993

From Legitimacy To Logic: Reconstructing Proxy Regulation, Jill E. Fisch

Faculty Scholarship at Penn Law

No abstract provided.