B. Balachandran, H. N. Duong, H. Luong, Lily H. G. Nguyen
We exploit the staggered initiation of merger and acquisition (M&A) laws across countries as a plausibly exogenous shock to the threat of takeover to examine whether the market for corporate control has a real effect on firm-level stock price crash risk. Using a difference-in-differences regression on a large sample of firms from 32 countries, we find that stock price crash risk significantly decreases following the passage of M&A laws. This effect is stronger for firms domiciled in countries with poorer investor protection and information environments and for firms with weaker firm-level governance. Further, financial reporting opacity and overinvestment significantly decrease in the post-M&A law periods. Our study suggests that an active takeover market has a disciplining effect on managerial bad news hoarding and leads to lower future crash risk.
{"title":"Does Takeover Activity Affect Stock Price Crash Risk? Evidence from International M&A Laws","authors":"B. Balachandran, H. N. Duong, H. Luong, Lily H. G. Nguyen","doi":"10.2139/ssrn.3109489","DOIUrl":"https://doi.org/10.2139/ssrn.3109489","url":null,"abstract":"We exploit the staggered initiation of merger and acquisition (M&A) laws across countries as a plausibly exogenous shock to the threat of takeover to examine whether the market for corporate control has a real effect on firm-level stock price crash risk. Using a difference-in-differences regression on a large sample of firms from 32 countries, we find that stock price crash risk significantly decreases following the passage of M&A laws. This effect is stronger for firms domiciled in countries with poorer investor protection and information environments and for firms with weaker firm-level governance. Further, financial reporting opacity and overinvestment significantly decrease in the post-M&A law periods. Our study suggests that an active takeover market has a disciplining effect on managerial bad news hoarding and leads to lower future crash risk.","PeriodicalId":309706,"journal":{"name":"CGN: Governance Law & Arrangements by Subject Matter (Topic)","volume":"42 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-06-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115376768","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In Australia a mode of liability that has been known as ‘stepping stones’ has attracted extensive debate and criticism, partly due to the corporate regulator’s propensity to employ it in actions against directors. Stepping stones liability has traditionally consisted of two elements – a breach of the law by the company and a breach of duty by the relevant director in allowing or not preventing the breach. However, the very recent judgment of the Full Federal Court in Cassimatis v Australian Securities and Investments Commission confirms that ‘stepping stones’ is really just a straightforward application of the statutory duty of care (or other duty) to the facts of each particular case.
{"title":"Dystopian Accessorial Liability’ or the End of ‘Stepping Stones’ As We Know It?","authors":"R. Langford","doi":"10.2139/ssrn.3583169","DOIUrl":"https://doi.org/10.2139/ssrn.3583169","url":null,"abstract":"In Australia a mode of liability that has been known as ‘stepping stones’ has attracted extensive debate and criticism, partly due to the corporate regulator’s propensity to employ it in actions against directors. Stepping stones liability has traditionally consisted of two elements – a breach of the law by the company and a breach of duty by the relevant director in allowing or not preventing the breach. However, the very recent judgment of the Full Federal Court in Cassimatis v Australian Securities and Investments Commission confirms that ‘stepping stones’ is really just a straightforward application of the statutory duty of care (or other duty) to the facts of each particular case.","PeriodicalId":309706,"journal":{"name":"CGN: Governance Law & Arrangements by Subject Matter (Topic)","volume":"148 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-04-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115308953","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Jennifer McCallen, Roy Schmardebeck, Jonathan E. Shipman, Robert L. Whited
We use regression discontinuity design to evaluate the effects of Section 404(b) of the Sarbanes-Oxley Act (SOX) on audit costs and financial reporting and how these effects have changed over time. While audit fee premiums associated with 404(b) compliance were substantial in the initial years of compliance, we find that the premiums declined until 2010 before reversing and returning to early SOX levels by 2015. We also find that the likelihood that a company selects a Big 4 auditor is greater for 404(b) compliers and that this drives a portion of the audit fee premium. Although we find some evidence that compliance results in more effective internal controls, this effect is confined to the initial years following the extension of management internal control reporting to non-accelerated filers. We find no evidence that the audit of internal controls over financial reporting yields more informative internal control reports. Together, while evidence suggests that audit fees associated with internal control audits have not materially and sustainably declined since inception, we find no evidence that the increased audit effort is associated with improved internal control quality or reporting. Our findings directly respond to calls from regulators and academics for research on the updated Section 404(b) compliance rules recently introduced by the SEC and should be of interest to a variety of corporate stakeholders.
{"title":"Have the Effects of SOX Section 404(b) Compliance Changed Over Time?","authors":"Jennifer McCallen, Roy Schmardebeck, Jonathan E. Shipman, Robert L. Whited","doi":"10.2139/ssrn.3420787","DOIUrl":"https://doi.org/10.2139/ssrn.3420787","url":null,"abstract":"We use regression discontinuity design to evaluate the effects of Section 404(b) of the Sarbanes-Oxley Act (SOX) on audit costs and financial reporting and how these effects have changed over time. While audit fee premiums associated with 404(b) compliance were substantial in the initial years of compliance, we find that the premiums declined until 2010 before reversing and returning to early SOX levels by 2015. We also find that the likelihood that a company selects a Big 4 auditor is greater for 404(b) compliers and that this drives a portion of the audit fee premium. Although we find some evidence that compliance results in more effective internal controls, this effect is confined to the initial years following the extension of management internal control reporting to non-accelerated filers. We find no evidence that the audit of internal controls over financial reporting yields more informative internal control reports. Together, while evidence suggests that audit fees associated with internal control audits have not materially and sustainably declined since inception, we find no evidence that the increased audit effort is associated with improved internal control quality or reporting. Our findings directly respond to calls from regulators and academics for research on the updated Section 404(b) compliance rules recently introduced by the SEC and should be of interest to a variety of corporate stakeholders.","PeriodicalId":309706,"journal":{"name":"CGN: Governance Law & Arrangements by Subject Matter (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129116650","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Corporations, partnerships, and all other business organizations cannot appear pro se in either criminal or civil proceedings. Business organizations must use a hired lawyer to defend lawsuits. This arbitrary and outdated rule has not been revisited in over 150 years. This Article is the first to lay out in detail the current state of corporate pro se rights. It then debunks the current rationales offered for the prohibition on corporate self-representation. Finally, it offers a novel argument that business organizations should be given a constitutional pro se right to litigate their own cases. In doing this, it draws upon the importance of the individual constitutional due process rights that exist to protect against government deprivations of life and liberty. Individuals in the corporate context are equally at stake of deprivations of life and liberty given corporate lawsuits. These deprivations are particularly salient for non-executive employees. As such, this Article argues that if we really care about the individual pro se right, we should grant corporations a similar due process right.
{"title":"The Corporate Pro Se Litigant","authors":"Suneal Bedi","doi":"10.2139/ssrn.3550886","DOIUrl":"https://doi.org/10.2139/ssrn.3550886","url":null,"abstract":"Corporations, partnerships, and all other business organizations cannot appear pro se in either criminal or civil proceedings. Business organizations must use a hired lawyer to defend lawsuits. This arbitrary and outdated rule has not been revisited in over 150 years. This Article is the first to lay out in detail the current state of corporate pro se rights. It then debunks the current rationales offered for the prohibition on corporate self-representation. Finally, it offers a novel argument that business organizations should be given a constitutional pro se right to litigate their own cases. \u0000 \u0000In doing this, it draws upon the importance of the individual constitutional due process rights that exist to protect against government deprivations of life and liberty. Individuals in the corporate context are equally at stake of deprivations of life and liberty given corporate lawsuits. These deprivations are particularly salient for non-executive employees. As such, this Article argues that if we really care about the individual pro se right, we should grant corporations a similar due process right.","PeriodicalId":309706,"journal":{"name":"CGN: Governance Law & Arrangements by Subject Matter (Topic)","volume":"18 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-03-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122234754","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-02-14DOI: 10.4337/9781788975339.00013
M. Petrin, B. Choudhury
The question of the purpose of the corporation is among the most enduring debates in Anglo-American corporate law. In earlier times, the corporate purpose was clear, but as the corporate entity proliferated and matured – and its power and societal effects became far-reaching – the corporate purpose morphed into a complex issue. The corporate purpose is also closely linked to the notion of short-termism. As the corporate purpose necessarily defines the ultimate ends of corporations and their activities, it may also influence and define the time frame within which such activities are expected to translate into intended results. For this reason the corporate purpose and the time horizon for corporate aims and activities are closely interconnected. This chapter examines the corporate purpose and its links to short-termism. It will discuss these issues with reference to broader ‘Anglo-American law’ albeit with a specific focus on the United Kingdom and United States. Essentially, we argue that a narrow corporate purpose tends to foster short-termist corporate activities. Following on from this, we suggest that the time has come to break away from the dominant shareholder ideology of US and UK firms and adopt a broader corporate purpose. The chapter begins by taking a brief look at the evolution of the corporate purpose before engaging in a comparative examination of the relevant frameworks. It then moves to examine the issue of short-termism and its linkage with the corporate purpose debate. Finally, the chapter looks at the way forward, suggesting a rebalanced corporate purpose and measures addressing short-termism that can complement a reformulated purpose.
{"title":"Corporate Purpose and Short-Termism","authors":"M. Petrin, B. Choudhury","doi":"10.4337/9781788975339.00013","DOIUrl":"https://doi.org/10.4337/9781788975339.00013","url":null,"abstract":"The question of the purpose of the corporation is among the most enduring debates in Anglo-American corporate law. In earlier times, the corporate purpose was clear, but as the corporate entity proliferated and matured – and its power and societal effects became far-reaching – the corporate purpose morphed into a complex issue. \u0000 \u0000The corporate purpose is also closely linked to the notion of short-termism. As the corporate purpose necessarily defines the ultimate ends of corporations and their activities, it may also influence and define the time frame within which such activities are expected to translate into intended results. For this reason the corporate purpose and the time horizon for corporate aims and activities are closely interconnected. \u0000 \u0000This chapter examines the corporate purpose and its links to short-termism. It will discuss these issues with reference to broader ‘Anglo-American law’ albeit with a specific focus on the United Kingdom and United States. Essentially, we argue that a narrow corporate purpose tends to foster short-termist corporate activities. Following on from this, we suggest that the time has come to break away from the dominant shareholder ideology of US and UK firms and adopt a broader corporate purpose. \u0000 \u0000The chapter begins by taking a brief look at the evolution of the corporate purpose before engaging in a comparative examination of the relevant frameworks. It then moves to examine the issue of short-termism and its linkage with the corporate purpose debate. Finally, the chapter looks at the way forward, suggesting a rebalanced corporate purpose and measures addressing short-termism that can complement a reformulated purpose.","PeriodicalId":309706,"journal":{"name":"CGN: Governance Law & Arrangements by Subject Matter (Topic)","volume":"6 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123498618","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Delaware inhabits a competitive landscape that includes, but is not limited to, corporate law. Like other small jurisdictions active in cross-border corporate and financial services, Delaware has become widely associated with a particular area of specialization, providing de facto U.S. corporate law for large, publicly traded companies. However, the economic development imperatives prompting this have also led Delaware to explore opportunities in related though distinct fields that build upon this platform – effectively leveraging their corporate law advantage to expand and diversify the state's revenue streams. This article assesses Delaware's competitive position amidst this broader landscape. Part II provides an overview of prevailing accounts of U.S. corporate charter competition, which generally conclude that Delaware no longer faces substantial competition from other states; when the frame of reference is limited to domestic corporate charter competition, only federal preemption would appear to pose a substantial threat to Delaware's dominance. In response to these prevailing accounts, this part suggests that such a narrow view of the competitive landscape misses important dynamics that could affect Delaware's position moving forward. Minimally, these include the emergence of competitors abroad that challenge Delaware's corporate dominance on multiple fronts – both internationally and with respect to chartering of large companies based in the United States. Part III pushes the analysis further, however, by assessing Delaware's broader competitive landscape beyond corporate law, as such. This section reframes the matter by reference to underlying economic development imperatives, which are particularly pressing for smaller, resource-constrained jurisdictions like Delaware. It then examines Delaware's efforts to leverage corporate law – that is, to build on Delaware's corporate law advantage by expanding into related though distinct fields that build upon that preexisting platform, including aspects of financial services and insurance where chartering and innovative entity structures loom large. Part IV concludes, observing that this broader framing – including cross-border and extra- corporate dynamics – reveals a more complex competitive landscape than prevailing accounts can accommodate. Overall, Delaware faces real competition from a range of domestic and foreign jurisdictions that have grappled with similar economic development challenges through similar strategies, producing global competitive dynamics that may substantially impact Delaware's long-term prospects.
{"title":"Leveraging Corporate Law: A Broader Account of Delaware's Competition","authors":"Christopher M. Bruner","doi":"10.2139/ssrn.3530397","DOIUrl":"https://doi.org/10.2139/ssrn.3530397","url":null,"abstract":"Delaware inhabits a competitive landscape that includes, but is not limited to, corporate law. Like other small jurisdictions active in cross-border corporate and financial services, Delaware has become widely associated with a particular area of specialization, providing de facto U.S. corporate law for large, publicly traded companies. However, the economic development imperatives prompting this have also led Delaware to explore opportunities in related though distinct fields that build upon this platform – effectively leveraging their corporate law advantage to expand and diversify the state's revenue streams. This article assesses Delaware's competitive position amidst this broader landscape. \u0000 \u0000Part II provides an overview of prevailing accounts of U.S. corporate charter competition, which generally conclude that Delaware no longer faces substantial competition from other states; when the frame of reference is limited to domestic corporate charter competition, only federal preemption would appear to pose a substantial threat to Delaware's dominance. In response to these prevailing accounts, this part suggests that such a narrow view of the competitive landscape misses important dynamics that could affect Delaware's position moving forward. Minimally, these include the emergence of competitors abroad that challenge Delaware's corporate dominance on multiple fronts – both internationally and with respect to chartering of large companies based in the United States. \u0000 \u0000Part III pushes the analysis further, however, by assessing Delaware's broader competitive landscape beyond corporate law, as such. This section reframes the matter by reference to underlying economic development imperatives, which are particularly pressing for smaller, resource-constrained jurisdictions like Delaware. It then examines Delaware's efforts to leverage corporate law – that is, to build on Delaware's corporate law advantage by expanding into related though distinct fields that build upon that preexisting platform, including aspects of financial services and insurance where chartering and innovative entity structures loom large. \u0000 \u0000Part IV concludes, observing that this broader framing – including cross-border and extra- corporate dynamics – reveals a more complex competitive landscape than prevailing accounts can accommodate. Overall, Delaware faces real competition from a range of domestic and foreign jurisdictions that have grappled with similar economic development challenges through similar strategies, producing global competitive dynamics that may substantially impact Delaware's long-term prospects.","PeriodicalId":309706,"journal":{"name":"CGN: Governance Law & Arrangements by Subject Matter (Topic)","volume":"9 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121795666","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Shareholder action is exercised mainly through a binary system: for example, the shareholders vote either to approve a proposal or to reject it. They either follow the recommendation of management and vote with management or vote against it. In case of contention between incumbents and insurgents, shareholders need to determine whom to trust. Disclosures and proxy advisory firms’ recommendations add to the information the shareholders might consider before casting their binary vote. However, retail investors as well as small investors are generally underequipped and restricted economically from reaching an informed and educated shareholder decision, and thus vote infrequently. Abuse of insider information further disadvantages retail investors. Yet, corporate decisions are based on the choice of the majority of the shareholder vote and retail investors are assumed to rely on disclosed information when making investment decisions. The new generation of Special Purpose Acquisition Companies (SPACs), currently representing about half of the U.S. going-public transactions, is one example that illustrates the weakness of the binary system and the consequent vulnerability of small and unsophisticated shareholders. Remarkably, investors in SPACs can vote yes on management proposed acquisition transactions and, nonetheless, simultaneously choose to redeem their shares. Unsophisticated retail investors may not realize that they, as well, will be better off if they redeem their shares even though the transaction received the approval of the majority of the shareholder vote. This Article puts forward a proposal to amend the law and allow shareholders to act in a way that is contingent upon a simultaneous non-contingent action by other shareholders. For example, a shareholder of a SPAC should be able to choose to redeem her shares iff at least a specified percentage of redemption rights are exercised unconditionally. Similarly, a shareholder who has preemptive rights should have the right to exercise her rights with a limit that caps her participation and maintains her percentage holdings in the company. Generally, shareholders should have the option to act contingently when they are exercising a shareholder right, such as preemptive rights, appraisal rights, and when they are given a choice to participate in transactions such as tender offers and stock-buybacks. Unlike mandatory disclosure rules imposed on insiders, the proposed non-binary, contingent, shareholder action treats all shareholders equally and increases the power of the shareholder's action without incurring high costs of collaboration and communication among the shareholders..
{"title":"The Case for Non-Binary, Contingent, Shareholder Action","authors":"Mira Ganor","doi":"10.2139/ssrn.3530596","DOIUrl":"https://doi.org/10.2139/ssrn.3530596","url":null,"abstract":"Shareholder action is exercised mainly through a binary system: for example, the shareholders vote either to approve a proposal or to reject it. They either follow the recommendation of management and vote with management or vote against it. In case of contention between incumbents and insurgents, shareholders need to determine whom to trust. Disclosures and proxy advisory firms’ recommendations add to the information the shareholders might consider before casting their binary vote. However, retail investors as well as small investors are generally underequipped and restricted economically from reaching an informed and educated shareholder decision, and thus vote infrequently. Abuse of insider information further disadvantages retail investors. Yet, corporate decisions are based on the choice of the majority of the shareholder vote and retail investors are assumed to rely on disclosed information when making investment decisions. \u0000 \u0000The new generation of Special Purpose Acquisition Companies (SPACs), currently representing about half of the U.S. going-public transactions, is one example that illustrates the weakness of the binary system and the consequent vulnerability of small and unsophisticated shareholders. Remarkably, investors in SPACs can vote yes on management proposed acquisition transactions and, nonetheless, simultaneously choose to redeem their shares. Unsophisticated retail investors may not realize that they, as well, will be better off if they redeem their shares even though the transaction received the approval of the majority of the shareholder vote. \u0000 \u0000This Article puts forward a proposal to amend the law and allow shareholders to act in a way that is contingent upon a simultaneous non-contingent action by other shareholders. For example, a shareholder of a SPAC should be able to choose to redeem her shares iff at least a specified percentage of redemption rights are exercised unconditionally. Similarly, a shareholder who has preemptive rights should have the right to exercise her rights with a limit that caps her participation and maintains her percentage holdings in the company. \u0000 \u0000Generally, shareholders should have the option to act contingently when they are exercising a shareholder right, such as preemptive rights, appraisal rights, and when they are given a choice to participate in transactions such as tender offers and stock-buybacks. Unlike mandatory disclosure rules imposed on insiders, the proposed non-binary, contingent, shareholder action treats all shareholders equally and increases the power of the shareholder's action without incurring high costs of collaboration and communication among the shareholders..","PeriodicalId":309706,"journal":{"name":"CGN: Governance Law & Arrangements by Subject Matter (Topic)","volume":"23 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125853045","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The abolition of Investor-State Dispute Settlement (ISDS) between Canada and the United States in the Canada–United States–Mexico Agreement (CUSMA) is likely to renew the interest for corporate strategies aiming to take advantage of the protection of investment agreements concluded with third states. Treaty shopping and the problem of free riding by third country investors is certainly not a new feature of foreign investment. This problem is specifically addressed by denial of benefits (DoB) clauses in many investment agreements. DoB clauses allow a host state to pierce the corporate veil in order to deny treaty protection to foreign investors that have no economic connection to the state of incorporation. This paper explores the problems of form and the problems of substance of the DoB clause raised in arbitral decisions, with some concluding remarks.
{"title":"Piercing the Corporate Veil in International Investment Law: Problems with the Denial of Benefits Clause","authors":"Charles-Emmanuel Côté","doi":"10.2139/ssrn.3523769","DOIUrl":"https://doi.org/10.2139/ssrn.3523769","url":null,"abstract":"The abolition of Investor-State Dispute Settlement (ISDS) between Canada and the United States in the Canada–United States–Mexico Agreement (CUSMA) is likely to renew the interest for corporate strategies aiming to take advantage of the protection of investment agreements concluded with third states. Treaty shopping and the problem of free riding by third country investors is certainly not a new feature of foreign investment. This problem is specifically addressed by denial of benefits (DoB) clauses in many investment agreements. DoB clauses allow a host state to pierce the corporate veil in order to deny treaty protection to foreign investors that have no economic connection to the state of incorporation. This paper explores the problems of form and the problems of substance of the DoB clause raised in arbitral decisions, with some concluding remarks.","PeriodicalId":309706,"journal":{"name":"CGN: Governance Law & Arrangements by Subject Matter (Topic)","volume":"21 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-01-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128151104","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This is the text of a keynote address given at a conference with the same title held in New Delhi on 16 December 2019. In the address, I suggest that the defining feature of the approach taken by the drafters of India's new Bankruptcy Code was their decision to treat creditors as presumptively entitled to determine how the assets of an insolvent corporate debtor should be deployed, and that this represented a radical break from the old law. I suggest that there are very good reasons to favour a creditor-centric approach, but take some issue with the particular way in which creditors exercise control rights under the Code. I contrast the model of indirect creditor control we observe under English law with the more direct model of creditor control used in the Code, and suggest that direct creditor control may make it more difficult (and therefore costlier) for a third party to acquire the debtor's business. In cases in which value would be most likely to be maximised by leaving the assets in the hands of the debtor, I suggest that the decision to entrust the decision on a reorganisation plan to financial creditors sitting in a single class is potentially problematic on a number of levels, and that aspects of the treatment of non-financial creditors and senior (secured) financial creditors could be revisited. I conclude that if there is any appetite for reforms of the kind that I suggest, there is very good reason to think they could be implemented: since the Code has entered into force, it has been amended in a number of sensible ways, and it is clear that lawmakers are making every effort to ensure that the new law maximises the value of an insolvent debtor's estate for the benefit of its creditors.
{"title":"Insolvency and Bankruptcy Code 2016: Impact on Markets and the Economy","authors":"Kristin van Zwieten","doi":"10.2139/ssrn.3518778","DOIUrl":"https://doi.org/10.2139/ssrn.3518778","url":null,"abstract":"This is the text of a keynote address given at a conference with the same title held in New Delhi on 16 December 2019. \u0000 \u0000In the address, I suggest that the defining feature of the approach taken by the drafters of India's new Bankruptcy Code was their decision to treat creditors as presumptively entitled to determine how the assets of an insolvent corporate debtor should be deployed, and that this represented a radical break from the old law. I suggest that there are very good reasons to favour a creditor-centric approach, but take some issue with the particular way in which creditors exercise control rights under the Code. I contrast the model of indirect creditor control we observe under English law with the more direct model of creditor control used in the Code, and suggest that direct creditor control may make it more difficult (and therefore costlier) for a third party to acquire the debtor's business. In cases in which value would be most likely to be maximised by leaving the assets in the hands of the debtor, I suggest that the decision to entrust the decision on a reorganisation plan to financial creditors sitting in a single class is potentially problematic on a number of levels, and that aspects of the treatment of non-financial creditors and senior (secured) financial creditors could be revisited. I conclude that if there is any appetite for reforms of the kind that I suggest, there is very good reason to think they could be implemented: since the Code has entered into force, it has been amended in a number of sensible ways, and it is clear that lawmakers are making every effort to ensure that the new law maximises the value of an insolvent debtor's estate for the benefit of its creditors.","PeriodicalId":309706,"journal":{"name":"CGN: Governance Law & Arrangements by Subject Matter (Topic)","volume":"311 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-01-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122254468","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
By the end of the twentieth century, the then-dominant literature on “law and finance” assumed that concentrated ownership was a product of deficient legal systems that did not sufficiently protect outside investors. At the same time, commentators posited that the competitive pressures of economic globalization would push countries around the world to adopt an efficient regime of strong investor protection, which was thought to facilitate ownership dispersion. Nevertheless, at the dawn of the 2020s, ownership concentration not only persists, but appears to be on the rise among the world’s largest companies. This symposium essay in honor of Ronald Gilson explores what went wrong with the original predictions from two decades ago and the resulting lessons for corporate governance analysis. It shows that the focus on agency costs that dominated the earlier literature overlooked the fact that corporate governance structures are both (i) influenced by factors beyond tradeoffs in agency costs (such as non-pecuniary private benefits of control and nationalism), and (ii) affect social welfare in ways other than through their effects on investor protection. The essay then reflects on the emerging challenges to what I call the “modularity approach” to corporate law scholarship, and contemporary law-and-economic analysis more generally, which stipulates that each area of law should serve one key efficiency objective.
{"title":"Controlling Shareholders in the Twenty-First Century: Complicating Corporate Governance Beyond Agency Costs","authors":"M. Pargendler","doi":"10.2139/ssrn.3474555","DOIUrl":"https://doi.org/10.2139/ssrn.3474555","url":null,"abstract":"By the end of the twentieth century, the then-dominant literature on “law and finance” assumed that concentrated ownership was a product of deficient legal systems that did not sufficiently protect outside investors. At the same time, commentators posited that the competitive pressures of economic globalization would push countries around the world to adopt an efficient regime of strong investor protection, which was thought to facilitate ownership dispersion. Nevertheless, at the dawn of the 2020s, ownership concentration not only persists, but appears to be on the rise among the world’s largest companies. This symposium essay in honor of Ronald Gilson explores what went wrong with the original predictions from two decades ago and the resulting lessons for corporate governance analysis. It shows that the focus on agency costs that dominated the earlier literature overlooked the fact that corporate governance structures are both (i) influenced by factors beyond tradeoffs in agency costs (such as non-pecuniary private benefits of control and nationalism), and (ii) affect social welfare in ways other than through their effects on investor protection. The essay then reflects on the emerging challenges to what I call the “modularity approach” to corporate law scholarship, and contemporary law-and-economic analysis more generally, which stipulates that each area of law should serve one key efficiency objective.","PeriodicalId":309706,"journal":{"name":"CGN: Governance Law & Arrangements by Subject Matter (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-11-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127332584","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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