Law and Economics Commons^™

The Short And Puzzling Life Of The “Implicit Minority Discount” In Delaware Appraisal Law, Lawrence A. Hamermesh, Michael L. Wachter

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The “implicit minority discount,” or IMD, is a fairly new concept in Delaware appraisal law. A review of the case law discussing the concept, however, reveals that it has emerged haphazardly and has not been fully tested against principles that are generally accepted in the financial community. While control share blocks are valued at a premium because of the particular rights and opportunities associated with control, these are elements of value that cannot fairly be viewed as belonging either to the corporation or its shareholders. In corporations with widely dispersed share holdings, the firm is subject to agency costs that …

Prejudgment Interest In International Arbitration, Jeffrey M. Colon, Michael S. Knoll

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Tribunals in international arbitration are regularly asked by claimants to award prejudgment interest. Unless foreclosed by an agreement between the parties, there is widespread agreement prejudgment interest should put the claimant in the same position as it would have been had it not been injured by the respondent. However, there is little consensus how to calculate prejudgment interest in order to accomplish that purpose. In this Essay, we describe the proper method of calculating prejudgment interest based on sound financial principles. Using the paradigm that the respondent has forced the claimant to make an involuntary loan to the respondent, we …

The Legal Periphery Of Dominant Firm Conduct, Herbert J. Hovenkamp

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This essay explores two different but related problems and how U.S. antitrust law and EU competition law approach them. The first is the offense of attempt to monopolize, which concerns the acts that a firm that is not yet dominant might undertake in order to become dominant. The second is the offense of monopoly or dominant firm leveraging, which occurs when a firm uses its dominant position in one market to cause some kind of harm in a different market where it also does business.

The language of EU and U.S. provisions concerning dominant firms provokes one to think that …

Segundo Congreso Nacional De Organismos Públicos Autónomos, Bruno L. Costantini García

Bruno L. Costantini García

Memorias del Segundo Congreso Nacional de Organismos Públicos Autónomos. "Autonomía, Profesionalización, Control y Transparencia"

The Missing Monitor In Corporate Governance: The Directors' And Officers' Liability Insurer, Tom Baker, Sean J. Griffith

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This article reports the results of empirical research on the monitoring role of directors’ and officers’ liability insurance (D&O insurance) companies in American corporate governance. Economic theory provides three reasons to expect D&O insurers to serve as corporate governance monitors: first, monitoring provides insurers with a way to manage moral hazard; second, monitoring provides benefits to shareholders who might not otherwise need the risk distribution that D&O insurance provides; and third, the “bonding” provided by risk distribution gives insurers a comparative advantage in monitoring. Nevertheless, we find that D&O insurers neither monitor corporate governance during the life of the insurance …

Some Peer-To-Peer, Democratically And Voluntarily Produced Thoughts About 'The Wealth Of Networks: How Social Production Transforms Markets And Freedom,' By Yochai Benkler, Ann Bartow

Law Faculty Scholarship

In this review essay, Bartow concludes that The Wealth of Networks: How Social Production Transforms Markets and Freedom by Yochai Benkler is a book well worth reading, but that Benkler still has a bit more work to do before his Grand Unifying Theory of Life, The Internet, and Everything is satisfactorily complete. It isn't enough to concede that the Internet won't benefit everyone. He needs to more thoroughly consider the ways in which the lives of poor people actually worsen when previously accessible information, goods and services are rendered less convenient or completely unattainable by their migration online. Additionally, the …

Hedge Funds And Governance Targets, William W. Bratton

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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 …

Fiduciary Duties And The Analyst Scandals, Jill E. Fisch

All Faculty Scholarship

No abstract provided.

Predicting Corporate Governance Risk: Evidence From The Directors' & Officers' Liability Insurance Market, Tom Baker, Sean J. Griffith

All Faculty Scholarship

No abstract provided.

Keeping The Internet Neutral?: Tim Wu And Christopher Yoo Debate, Tim Wu, Christopher S. Yoo

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"Net neutrality" has been among the leading issues of telecommunications policy this decade. Is the neutrality of the Internet fundamental to its success, and worth regulating to protect, or simply a technical design subject to improvement? In this debate-form commentary, Tim Wu and Christopher Yoo make clear the connection between net neutrality and broader issues of national telecommunications policy.

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 …

Who Writes The Rules For Hostile Takeovers, And Why? The Peculiar Divergence Of Us And Uk Takeover Regulation, John Armour, David A. Skeel Jr.

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No abstract provided.

Criminalization Of Corporate Law: The Impact On Shareholders And Other Constituents, Jill E. Fisch

All Faculty Scholarship

No abstract provided.

Does Analyst Independence Sell Investors Short?, Jill E. Fisch

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Regulators responded to the analyst scandals of the late 1990s by imposing extensive new rules on the research industry. These rules include a requirement forcing financial firms to separate investment banking operations from research. Regulators argued, with questionable empirical support, that the reforms were necessary to eliminate analyst conflicts of interest and ensure the integrity of sell-side research.

By eliminating investment banking revenues as a source for funding research, the reforms have had substantial effects. Research coverage of small issuers has been dramatically reduced—the vast majority of small capitalization firms now have no coverage at all. The market for research …

Reasonable Emissions Of Greenhouse Gases: Efficient Abatement For A Stock Pollutant, Howard F. Chang

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No abstract provided.

Compaq Redux: Implicit Taxes And The Question Of Pre-Tax Profit, Michael S. Knoll

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This paper takes a new look at the cross-border dividend-stripping transactions that gave rise to the Fifth Circuit’s opinion in Compaq v. Commissioner and the Eighth Circuit’s opinion in IES Industries v. Commissioner. In both cases, the circuit courts held for the taxpayers and rejected the Commissioner’s claim that the transactions lacked economic substance because the taxpayers were sure to lose money on the transactions before taxes. These cases generated extensive commentary that was split into two diametrically opposed camps. One group argued that the decisions were correct because the transactions were economically profitable business transactions. The other group argued …

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

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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 contributed …

Restraints On Innovation, Herbert J. Hovenkamp

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Beginning with the work of Joseph Schumpeter in the 1940s and later elaborated by Robert W. Solow's work on the neoclassical growth model, economics has produced a strong consensus that the economic gains from innovation dwarf those to be had from capital accumulation and increased price competition. An important but sometimes overlooked corollary is that restraints on innovation can do far more harm to the economy than restraints on traditional output or pricing. Many practices that violate the antitrust laws are best understood as restraints on innovation rather than restraints on pricing.

While antitrust models for assessing losses that result …

Jurisprudential Schizophrenia: On Form And Function In Islamic Finance, Haider Ala Hamoudi

Articles

Despite its explosive growth over the past several decades, Islamic finance continues to have trouble attracting large numbers of otherwise pious Muslims as potential investors. The underlying reason for this is that the means that the practice employs to circumvent some of the central Muslim bans relating to finance (most notably, the ban on interest) are entirely formal in their structure and are equivalent to conventional structures both legally and economically. However, the practice purports to serve functional ends; namely, through offering Muslims alternative means of finance that are intended to further Islamic ideals of fairness and social justice. This …

The Dutch Auction Myth, Peter B. Oh

Articles

The bursting of the internet bubble continues to have ripple effects on the initial public offering (IPO) process. Critics of this process have fashioned a complex set of interconnected objections to the orthodox bookbuilding method for conducting IPOs, pricing shares, and allocating them to preferred investors. Critics instead hail online reverse-bid, or Dutch, auctions (Dutch IPOs) as an alternative method promising more equitable access, efficient prices, and egalitarian allocations.

This article comprehensively assesses the case for Dutch IPOs. Part I dissects critiques of bookbuilding, which rely on anomalous data, derogate established financial literature, and largely evaporate in the face of …

Under Cover Of Science: American Legal-Economic Theory And The Quest For Objectivity, James Hackney Jr.

James R. Hackney Jr.

No abstract provided.