V. Atanasov, Conrad S. Ciccotello, Stanley B. Gyoshev
This Article examines the development of company law in Bulgaria. Like Russia and other Eastern European nations such as Czechoslovakia and Poland, Bulgaria engaged in mass privatization. The Bulgarian Big Bang was in 1998 and over a thousand firms were listed on the Bulgarian Stock Exchange. Similar to several other Eastern European transition economies, the Bulgarian market suffered after its opening from mass expropriation of minority shareholder wealth. Two-thirds of all Bulgarian firms were de-listed within three years (1999-2001) of their first trading on the Bulgarian Stock Exchange. Since 2002, however, the Bulgarian market has made a strong recovery. The focus of this Article is on changes in two particular areas of the company law - preemptive and appraisal rights, and their linkage to the turnaround in the Bulgarian market. The old (1999) Bulgarian company law did contain both provisions, but despite these legal protections, more than 80% of the de-listed firms went private without any compensation given to their minority shareholders. The remaining firms were de-listed via tender offers for minority stakes, which occurred at about 25% of fair value, on average. Company law changes that became effective in 2002 kept preemptive and appraisal rights in place, but changed their nature as well as the required regulatory approvals. After company law changes became effective in 2002, the health of the Bulgarian stock market improved dramatically. Tender offers for minority shares decreased in number. Those that did occur began to be at premiums to market value similar to those observed in developed markets. The concentration of ownership in Bulgarian firms began to decrease and liquidity, as measured by the amount of shares traded, began to increase. The valuation of shares also increased markedly. The changes in company law reflect guidance in the Principles of Company Law for Transition Economies. As the authors of the Principles argued, laws must fit the institutional environment of the transition economy. Those laws directly imported from developed markets may fail in transition markets. Consistent with the Principle V, the changes in the Bulgarian law effective in 2002 placed primary emphasis on the protection of minority shareholders. Changes shifted the reliance away from market prices, judges, and required actions by minority shareholders. They increased reliance on bright line rules, and on the automatic creation of transactional options such as veto power and share purchase.
{"title":"Learning from the General Principles of Company Law for Transition Economies: The Case of Bulgaria","authors":"V. Atanasov, Conrad S. Ciccotello, Stanley B. Gyoshev","doi":"10.2139/SSRN.770288","DOIUrl":"https://doi.org/10.2139/SSRN.770288","url":null,"abstract":"This Article examines the development of company law in Bulgaria. Like Russia and other Eastern European nations such as Czechoslovakia and Poland, Bulgaria engaged in mass privatization. The Bulgarian Big Bang was in 1998 and over a thousand firms were listed on the Bulgarian Stock Exchange. Similar to several other Eastern European transition economies, the Bulgarian market suffered after its opening from mass expropriation of minority shareholder wealth. Two-thirds of all Bulgarian firms were de-listed within three years (1999-2001) of their first trading on the Bulgarian Stock Exchange. Since 2002, however, the Bulgarian market has made a strong recovery. The focus of this Article is on changes in two particular areas of the company law - preemptive and appraisal rights, and their linkage to the turnaround in the Bulgarian market. The old (1999) Bulgarian company law did contain both provisions, but despite these legal protections, more than 80% of the de-listed firms went private without any compensation given to their minority shareholders. The remaining firms were de-listed via tender offers for minority stakes, which occurred at about 25% of fair value, on average. Company law changes that became effective in 2002 kept preemptive and appraisal rights in place, but changed their nature as well as the required regulatory approvals. After company law changes became effective in 2002, the health of the Bulgarian stock market improved dramatically. Tender offers for minority shares decreased in number. Those that did occur began to be at premiums to market value similar to those observed in developed markets. The concentration of ownership in Bulgarian firms began to decrease and liquidity, as measured by the amount of shares traded, began to increase. The valuation of shares also increased markedly. The changes in company law reflect guidance in the Principles of Company Law for Transition Economies. As the authors of the Principles argued, laws must fit the institutional environment of the transition economy. Those laws directly imported from developed markets may fail in transition markets. Consistent with the Principle V, the changes in the Bulgarian law effective in 2002 placed primary emphasis on the protection of minority shareholders. Changes shifted the reliance away from market prices, judges, and required actions by minority shareholders. They increased reliance on bright line rules, and on the automatic creation of transactional options such as veto power and share purchase.","PeriodicalId":83094,"journal":{"name":"The Journal of corporation law","volume":"31 1","pages":"1003"},"PeriodicalIF":0.0,"publicationDate":"2005-07-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"67824783","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 shareholder primacy norm defines the objective of the corporation as maximization of shareholder wealth. Law and economics scholars have incorporated the shareholder primacy norm into their empirical analyses of regulatory efficiency. An increasingly influential body of scholarship uses empirical methodology to evaluate legal rules that allocate power within the corporation. By embracing the shareholder primacy norm, empirical scholars offer normative assessments about regulatory choices based on the effect of legal rules on measures of shareholder value such as stock price, net profits and Tobins Q.This Article challenges the foundations of using the shareholder primacy norm to judge corporate law. As the Article explains, existing legal doctrine and economic theory provide only limited support for shareholder primacy. Similarly, shareholder primacy cannot be justified as a necessary consequence of existing limits on the enforcement of management fiduciary duties. The Article demonstrates that, rather than defining the corporation's objectives, the limited scope of a fiduciary duty claim provides a mechanism for institutional specialization in responding to the needs of different corporate stakeholders. Comparative institutional analysis suggests that the courts are uniquely positioned to protect the interests of shareholders in the context of inter-stakeholder conflicts. Implementation of this role through rules that grant shareholders a unique degree of judicial access does not privilege the interests of shareholders in the evaluation of firm value.The presence of other stakeholders, whose interests in the firm may be not reflected in an assessment of shareholder value, offers reasons to question the conclusions of existing empirical research. In addition, the measures of shareholder value typically employed by empirical scholars - particularly short term stock price - are problematic as indications of firm value and may reinforce inappropriate managerial decisions. The Article maintains that empirical scholars need to offer better and explicit justifications for their reliance on shareholder wealth and, more importantly, for their argument that shareholder wealth effects should dominate regulatory policy.
{"title":"Measuring Efficiency in Corporate Law: The Role of Shareholder Primacy","authors":"Jill E. Fisch","doi":"10.2139/SSRN.878391","DOIUrl":"https://doi.org/10.2139/SSRN.878391","url":null,"abstract":"The shareholder primacy norm defines the objective of the corporation as maximization of shareholder wealth. Law and economics scholars have incorporated the shareholder primacy norm into their empirical analyses of regulatory efficiency. An increasingly influential body of scholarship uses empirical methodology to evaluate legal rules that allocate power within the corporation. By embracing the shareholder primacy norm, empirical scholars offer normative assessments about regulatory choices based on the effect of legal rules on measures of shareholder value such as stock price, net profits and Tobins Q.This Article challenges the foundations of using the shareholder primacy norm to judge corporate law. As the Article explains, existing legal doctrine and economic theory provide only limited support for shareholder primacy. Similarly, shareholder primacy cannot be justified as a necessary consequence of existing limits on the enforcement of management fiduciary duties. The Article demonstrates that, rather than defining the corporation's objectives, the limited scope of a fiduciary duty claim provides a mechanism for institutional specialization in responding to the needs of different corporate stakeholders. Comparative institutional analysis suggests that the courts are uniquely positioned to protect the interests of shareholders in the context of inter-stakeholder conflicts. Implementation of this role through rules that grant shareholders a unique degree of judicial access does not privilege the interests of shareholders in the evaluation of firm value.The presence of other stakeholders, whose interests in the firm may be not reflected in an assessment of shareholder value, offers reasons to question the conclusions of existing empirical research. In addition, the measures of shareholder value typically employed by empirical scholars - particularly short term stock price - are problematic as indications of firm value and may reinforce inappropriate managerial decisions. The Article maintains that empirical scholars need to offer better and explicit justifications for their reliance on shareholder wealth and, more importantly, for their argument that shareholder wealth effects should dominate regulatory policy.","PeriodicalId":83094,"journal":{"name":"The Journal of corporation law","volume":"31 1","pages":"637"},"PeriodicalIF":0.0,"publicationDate":"2004-12-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"67852465","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 recent series of corporate scandals has heated up the executive compensation debate. Those who warn of problems with the current system marshal evidence of structural pressures on directors to comply with executives' desires. They also point to common elements in compensation packages that seem poorly designed to induce managers to run the corporation efficiently. Defenders of the status quo point to apparent correlations between pay and performance, as well as to the increasing number of independent directors. The evidence on both sides is indirect and therefore vulnerable to alternative explanations. The absence of conclusive data in the executive compensation debate is understandable. Direct evidence of boards' cooption would require the unlikeliest of confessions; directors are not apt to admit breaching their fiduciary duties in giving in to their chief executive's pay demands. On the other side of the debate, it is very difficult to prove a negative, that directors do not bend to their CEOs' will in setting managers' pay. This article attempts to fill this evidentiary gap with an empirical test. The article employs a classroom model of the pay-setting process, making it possible to isolate a single variable - here, managerial power - and measure its impact. In this study, executive power had a dramatic impact on compensation, producing salaries that were not only much higher than those under a pure market regime but, in fact, demonstrably excessive. The results support critics of the existing regime and argue for legal changes to reduce chief executives' power over directors.
{"title":"Does One Hand Wash the Other? Testing the Managerial Power and Optimal Contracting Hypotheses of Executive Compensation","authors":"Michael B. Dorff","doi":"10.2139/SSRN.574861","DOIUrl":"https://doi.org/10.2139/SSRN.574861","url":null,"abstract":"The recent series of corporate scandals has heated up the executive compensation debate. Those who warn of problems with the current system marshal evidence of structural pressures on directors to comply with executives' desires. They also point to common elements in compensation packages that seem poorly designed to induce managers to run the corporation efficiently. Defenders of the status quo point to apparent correlations between pay and performance, as well as to the increasing number of independent directors. The evidence on both sides is indirect and therefore vulnerable to alternative explanations. The absence of conclusive data in the executive compensation debate is understandable. Direct evidence of boards' cooption would require the unlikeliest of confessions; directors are not apt to admit breaching their fiduciary duties in giving in to their chief executive's pay demands. On the other side of the debate, it is very difficult to prove a negative, that directors do not bend to their CEOs' will in setting managers' pay. This article attempts to fill this evidentiary gap with an empirical test. The article employs a classroom model of the pay-setting process, making it possible to isolate a single variable - here, managerial power - and measure its impact. In this study, executive power had a dramatic impact on compensation, producing salaries that were not only much higher than those under a pure market regime but, in fact, demonstrably excessive. The results support critics of the existing regime and argue for legal changes to reduce chief executives' power over directors.","PeriodicalId":83094,"journal":{"name":"The Journal of corporation law","volume":"30 1","pages":"255"},"PeriodicalIF":0.0,"publicationDate":"2004-08-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.2139/SSRN.574861","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"67767634","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}
Giving shareholders power to make major corporate decisions on their own initiative, as academics, regulators, and legislators have recently proposed, would reduce shareholder wealth. I accept in this paper that institutional investors will use shareholder intiative intelligently in service of their own interests. But institutional investors, motivated by market, political, and social forces, and insulation from these forces, are interested in things other than shareholder wealth. And the practical requirement that institutions with divergent sectional interests form voting majorities does not guarantee voting outcomes that advance a common shareholder-wealth interest rather than a package of sectional interests. Effective shareholder voting (in the non-takeover context) must be justified as advancing a corporate-law end other than shareholder wealth maximization---for example, distributing corporate profits desirably, attaining a governance process valuable in itself, or inducing corporate compliance with external legal constraints. I conclude that shareholder initiative's supporters are unwittingly supporting the latest effort to redesign corporate law in stakeholders' favor.
{"title":"Classifying Institutional Investors","authors":"K. Camara","doi":"10.2139/SSRN.573441","DOIUrl":"https://doi.org/10.2139/SSRN.573441","url":null,"abstract":"Giving shareholders power to make major corporate decisions on their own initiative, as academics, regulators, and legislators have recently proposed, would reduce shareholder wealth. I accept in this paper that institutional investors will use shareholder intiative intelligently in service of their own interests. But institutional investors, motivated by market, political, and social forces, and insulation from these forces, are interested in things other than shareholder wealth. And the practical requirement that institutions with divergent sectional interests form voting majorities does not guarantee voting outcomes that advance a common shareholder-wealth interest rather than a package of sectional interests. Effective shareholder voting (in the non-takeover context) must be justified as advancing a corporate-law end other than shareholder wealth maximization---for example, distributing corporate profits desirably, attaining a governance process valuable in itself, or inducing corporate compliance with external legal constraints. I conclude that shareholder initiative's supporters are unwittingly supporting the latest effort to redesign corporate law in stakeholders' favor.","PeriodicalId":83094,"journal":{"name":"The Journal of corporation law","volume":"30 1","pages":"219"},"PeriodicalIF":0.0,"publicationDate":"2004-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"67767334","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 Article examines three major problems that contributed to the wave of corporate audit failures that ravaged investors in recent years: (1) auditing firms are too cozy with corporate management to provide a truly independent check on management's abuse of corporate financial reports, (2) auditors have further compromised their independence by offering nonaudit services to audit clients, and (3) audits have failed to uncover colossal frauds and major financial misstatements. After explaining the nature of each of these three problems, the Article considers and evaluates the responses of the Sarbanes-Oxley Act of 2002 - namely, mandatory rotation of partners within the audit firm, restrictions on client hiring of audit firm personnel, prohibition of certain nonaudit services, allowance of other nonaudit services (including tax advice) with prior approval, regulation of accountants by a new oversight board, and formulation of audit standards by an organization not dominated by accountants. The Article concludes that the Sarbanes-Oxley Act represents a largely missed opportunity for serious reform of the auditor-client relationship, adopting half-hearted measures that are unlikely to make a significant difference in the vital function of providing credibility to corporate financial reporting.
本文考察了近年来导致公司审计失败浪潮的三个主要问题:(1)审计公司与公司管理层过于亲密，无法对管理层滥用公司财务报告提供真正独立的检查;(2)审计师通过向审计客户提供非审计服务进一步损害了他们的独立性;(3)审计未能发现巨额欺诈和重大财务错报。在解释了这三个问题的性质之后，本文考虑并评估了2002年《萨班斯-奥克斯利法案》(Sarbanes-Oxley Act of 2002)的回应——即审计公司内部合伙人的强制轮岗、限制客户雇佣审计公司人员、禁止某些非审计服务、允许其他非审计服务(包括税务咨询)在事先获得批准的情况下、由新的监督委员会对会计师进行监管、由一个不以会计师为主导的组织制定审计准则。文章的结论是，《萨班斯-奥克斯利法案》在很大程度上错失了对审计师-客户关系进行认真改革的机会，采取了半心半意的措施，不太可能在为公司财务报告提供可信度的重要功能方面产生重大影响。
{"title":"The Mother of All Conflicts: Auditors and Their Clients","authors":"R. Kaplan","doi":"10.2139/SSRN.556623","DOIUrl":"https://doi.org/10.2139/SSRN.556623","url":null,"abstract":"This Article examines three major problems that contributed to the wave of corporate audit failures that ravaged investors in recent years: (1) auditing firms are too cozy with corporate management to provide a truly independent check on management's abuse of corporate financial reports, (2) auditors have further compromised their independence by offering nonaudit services to audit clients, and (3) audits have failed to uncover colossal frauds and major financial misstatements. After explaining the nature of each of these three problems, the Article considers and evaluates the responses of the Sarbanes-Oxley Act of 2002 - namely, mandatory rotation of partners within the audit firm, restrictions on client hiring of audit firm personnel, prohibition of certain nonaudit services, allowance of other nonaudit services (including tax advice) with prior approval, regulation of accountants by a new oversight board, and formulation of audit standards by an organization not dominated by accountants. The Article concludes that the Sarbanes-Oxley Act represents a largely missed opportunity for serious reform of the auditor-client relationship, adopting half-hearted measures that are unlikely to make a significant difference in the vital function of providing credibility to corporate financial reporting.","PeriodicalId":83094,"journal":{"name":"The Journal of corporation law","volume":"29 1","pages":"363-383"},"PeriodicalIF":0.0,"publicationDate":"2004-06-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"67762631","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 article argues that the process of globalization has generated a legitimation deficit that can be the source of wasteful, even destructive, social and political conflict. I stylize this outcome as "the PetroChina Syndrome," after a leading example of the kind of activity generated in response to globalization, the PetroChina Campaign, where a coalition of labor, human rights, environmental, anti-slavery and religious groups worked together to oppose the initial public offering of a major Chinese oil company led by Goldman Sachs. The article begins with a discussion of this important but largely unexplored dimension of the anti-globalization era triggered by the 1999 demonstrations in Seattle against the World Trade Organization. The Campaign and its impact are discussed in detail. I then examine three possible arguments that shed some light on this development, including traditional securities law approaches, the broader political context and, finally, structural changes in corporate finance. These three arguments, I argue, are helpful but not sufficient. Recent work by the economist Massimo De Angelis on John Maynard Keynes and Milton Friedman helps us shape an alternative explanation rooted in understanding changes in the institutional mechanisms of the global labor and capital markets. The displacement of the trade union and collective bargaining by globalization has pushed organized labor and other groups to look to political intervention in the capital markets as an alternative means to establish legitimacy. This intervention should be encouraged to develop new institutions to respond to the growing legitimation crisis of global capitalism.
本文认为，全球化进程产生了一种合法性赤字，它可能成为浪费的、甚至破坏性的社会和政治冲突的根源。我把这一结果称为“中石油综合症”，这个名字来源于一个为应对全球化而产生的活动的典型例子——中石油运动。在该运动中，一个由劳工、人权、环境、反奴隶制和宗教团体组成的联盟，共同反对由高盛(Goldman Sachs)领导的中国一家大型石油公司首次公开募股(ipo)。本文首先讨论了1999年西雅图反对世界贸易组织的示威引发的反全球化时代的这个重要但基本上未被探索的维度。详细讨论了该运动及其影响。然后，我考察了三种可能对这一发展有所启发的论点，包括传统的证券法方法、更广泛的政治背景，最后是公司融资的结构性变化。我认为，这三个论点有帮助，但还不够充分。经济学家马西莫·德·安吉利斯(Massimo De Angelis)最近对约翰·梅纳德·凯恩斯(John Maynard Keynes)和米尔顿·弗里德曼(Milton Friedman)的研究，帮助我们形成了另一种解释，这种解释植根于对全球劳动力和资本市场制度机制变化的理解。全球化取代了工会和集体谈判，促使有组织的劳工和其他团体将对资本市场的政治干预视为建立合法性的另一种手段。应该鼓励这种干预，以发展新的机构，以应对全球资本主义日益严重的合法性危机。
{"title":"The PetroChina Syndrome: Regulating Capital Markets in the Anti-Globalization Era","authors":"S. Diamond","doi":"10.2139/SSRN.1030976","DOIUrl":"https://doi.org/10.2139/SSRN.1030976","url":null,"abstract":"This article argues that the process of globalization has generated a legitimation deficit that can be the source of wasteful, even destructive, social and political conflict. I stylize this outcome as \"the PetroChina Syndrome,\" after a leading example of the kind of activity generated in response to globalization, the PetroChina Campaign, where a coalition of labor, human rights, environmental, anti-slavery and religious groups worked together to oppose the initial public offering of a major Chinese oil company led by Goldman Sachs. The article begins with a discussion of this important but largely unexplored dimension of the anti-globalization era triggered by the 1999 demonstrations in Seattle against the World Trade Organization. The Campaign and its impact are discussed in detail. I then examine three possible arguments that shed some light on this development, including traditional securities law approaches, the broader political context and, finally, structural changes in corporate finance. These three arguments, I argue, are helpful but not sufficient. Recent work by the economist Massimo De Angelis on John Maynard Keynes and Milton Friedman helps us shape an alternative explanation rooted in understanding changes in the institutional mechanisms of the global labor and capital markets. The displacement of the trade union and collective bargaining by globalization has pushed organized labor and other groups to look to political intervention in the capital markets as an alternative means to establish legitimacy. This intervention should be encouraged to develop new institutions to respond to the growing legitimation crisis of global capitalism.","PeriodicalId":83094,"journal":{"name":"The Journal of corporation law","volume":"24 1","pages":"39"},"PeriodicalIF":0.0,"publicationDate":"2004-01-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"68131224","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}
Many commentators have criticized the Sarbanes-Oxley Act of 2002 as evidence of the creeping federalization of corporate law. In this Article, I argue that a realistic threat of federalization is necessary to ensure the robust development of corporate law at the state level. Because Delaware enjoys a monopoly position in the market for out-of-state incorporations, there is little pressure on the state to shape its laws to increase protections for shareholders and other constituent groups. Only the federal government can credibly serve as a rival to Delaware. The Sarbanes-Oxley Act's impact on Delaware corporate law demonstrates the potential for a dynamic relationship between state and federal regulation of corporate conduct. Recent Delaware court decisions suggest that Delaware's judiciary has begun to respond to the preemptive threat through adjustments to its corporate law jurisprudence. The courts appear to be moving to more restrictive application of the business judgment rule and more vigorous enforcement of officers' and directors' fiduciary duties. This jurisprudential shift demonstrates that Congress can effectively influence state law through legislative measures that do not require complete preemption of state law.
{"title":"Rethinking Corporate Federalism in the Era of Corporate Reform","authors":"Renee M. Jones","doi":"10.2139/SSRN.459400","DOIUrl":"https://doi.org/10.2139/SSRN.459400","url":null,"abstract":"Many commentators have criticized the Sarbanes-Oxley Act of 2002 as evidence of the creeping federalization of corporate law. In this Article, I argue that a realistic threat of federalization is necessary to ensure the robust development of corporate law at the state level. Because Delaware enjoys a monopoly position in the market for out-of-state incorporations, there is little pressure on the state to shape its laws to increase protections for shareholders and other constituent groups. Only the federal government can credibly serve as a rival to Delaware. The Sarbanes-Oxley Act's impact on Delaware corporate law demonstrates the potential for a dynamic relationship between state and federal regulation of corporate conduct. Recent Delaware court decisions suggest that Delaware's judiciary has begun to respond to the preemptive threat through adjustments to its corporate law jurisprudence. The courts appear to be moving to more restrictive application of the business judgment rule and more vigorous enforcement of officers' and directors' fiduciary duties. This jurisprudential shift demonstrates that Congress can effectively influence state law through legislative measures that do not require complete preemption of state law.","PeriodicalId":83094,"journal":{"name":"The Journal of corporation law","volume":"29 1","pages":"625"},"PeriodicalIF":0.0,"publicationDate":"2003-10-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"67737781","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}
Twenty years ago we published a paper, "The Mechanisms of Market Efficiency," that sought to describe the institutional underpinnings of price formation in the securities market. Since that time, financial economics has moved forward on many fronts. The sub-discipline of behavioral finance has struggled to bring yet more descriptive realism to the study of financial markets. Two important questions are (1) how much has this new discipline changed our understanding of the efficiency and nature of the institutional mechanisms that set price in financial markets; and (2) how far does this discipline carry novel implications for the regulation of financial markets or corporate behavior more generally? We argue that, despite its heavy reliance on the psychology of cognitive bias, the principal contribution of behavioral finance is to enrich our understanding of market institutions rather than to present us with a fundamentally new paradigm of market behavior. In particular, the cognitive limitations of individual investors or noise traders are likely to matter to pricing behavior to the extent that they interact with - and are not offset by - the arbitrage mechanism in the market. The most important contribution of behavioral finance lies in sharpening our understanding of the limitations of the arbitrage mechanism. Even when cognitive bias does not have clear implications for securities prices, however, it may have important implications for policy. These implications are unlikely to arise in the area of corporate takeovers, as some have claimed, but they do arise in areas akin to consumer protection, as where cognitive bias might lead unsophisticated investors to construct dangerously undiversified retirement portfolios.
20年前，我们发表了一篇论文《市场效率机制》(The Mechanisms of Market Efficiency)，试图描述证券市场价格形成的制度基础。从那时起，金融经济学在许多方面都取得了进展。行为金融学的分支学科一直在努力为金融市场研究带来更多的描述性现实主义。两个重要的问题是:(1)这门新学科在多大程度上改变了我们对金融市场定价制度机制的效率和性质的理解;(2)这门学科在多大程度上对金融市场或企业行为的监管产生了新的影响?我们认为，尽管行为金融学严重依赖于认知偏差心理学，但它的主要贡献是丰富了我们对市场制度的理解，而不是向我们展示了一种全新的市场行为范式。特别是，个人投资者或噪音交易者的认知局限性很可能对定价行为产生影响，因为他们与市场中的套利机制相互作用，而不是被套利机制抵消。行为金融学最重要的贡献在于加深了我们对套利机制局限性的认识。然而，即使认知偏差对证券价格没有明确的影响，它也可能对政策产生重要影响。这些影响不太可能像一些人声称的那样出现在企业收购领域，但它们确实出现在类似于消费者保护的领域，在这些领域，认知偏见可能会导致不成熟的投资者构建危险的单一退休投资组合。
{"title":"The Mechanisms of Market Efficiency Twenty Years Later: The Hindsight Bias","authors":"R. Gilson, Reinier H. Kraakman","doi":"10.2139/SSRN.462786","DOIUrl":"https://doi.org/10.2139/SSRN.462786","url":null,"abstract":"Twenty years ago we published a paper, \"The Mechanisms of Market Efficiency,\" that sought to describe the institutional underpinnings of price formation in the securities market. Since that time, financial economics has moved forward on many fronts. The sub-discipline of behavioral finance has struggled to bring yet more descriptive realism to the study of financial markets. Two important questions are (1) how much has this new discipline changed our understanding of the efficiency and nature of the institutional mechanisms that set price in financial markets; and (2) how far does this discipline carry novel implications for the regulation of financial markets or corporate behavior more generally? We argue that, despite its heavy reliance on the psychology of cognitive bias, the principal contribution of behavioral finance is to enrich our understanding of market institutions rather than to present us with a fundamentally new paradigm of market behavior. In particular, the cognitive limitations of individual investors or noise traders are likely to matter to pricing behavior to the extent that they interact with - and are not offset by - the arbitrage mechanism in the market. The most important contribution of behavioral finance lies in sharpening our understanding of the limitations of the arbitrage mechanism. Even when cognitive bias does not have clear implications for securities prices, however, it may have important implications for policy. These implications are unlikely to arise in the area of corporate takeovers, as some have claimed, but they do arise in areas akin to consumer protection, as where cognitive bias might lead unsophisticated investors to construct dangerously undiversified retirement portfolios.","PeriodicalId":83094,"journal":{"name":"The Journal of corporation law","volume":"28 1","pages":"715"},"PeriodicalIF":0.0,"publicationDate":"2003-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"67740338","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}
Despite the considerable research that has occurred over the twenty years following the publication of Ronald Gilson's and Reinier Kraakman's article, The Mechanisms of Market Efficiency, there still remains a fundamental puzzle concerning the price fluctuations of securities. The explanatory power - the R squared - of various models used by financial economists to explain security price fluctuations is quite low, in the range of .20 to .30. What accounts for the other 70% to 80% of price fluctuations? This paper explores the challenges this puzzle poses to our understanding of security markets, the role played by mechanisms of market inefficiency (noise traders) as well as various mechanisms of market efficiency (information revelation via trading; the firm as arbitrageur) and the impact of legal institutions and practices on the operation of security markets.
{"title":"If We Understand the Mechanisms, Why Don't We Understand Their Output?","authors":"Allen Ferrell","doi":"10.2139/SSRN.393683","DOIUrl":"https://doi.org/10.2139/SSRN.393683","url":null,"abstract":"Despite the considerable research that has occurred over the twenty years following the publication of Ronald Gilson's and Reinier Kraakman's article, The Mechanisms of Market Efficiency, there still remains a fundamental puzzle concerning the price fluctuations of securities. The explanatory power - the R squared - of various models used by financial economists to explain security price fluctuations is quite low, in the range of .20 to .30. What accounts for the other 70% to 80% of price fluctuations? This paper explores the challenges this puzzle poses to our understanding of security markets, the role played by mechanisms of market inefficiency (noise traders) as well as various mechanisms of market efficiency (information revelation via trading; the firm as arbitrageur) and the impact of legal institutions and practices on the operation of security markets.","PeriodicalId":83094,"journal":{"name":"The Journal of corporation law","volume":"28 1","pages":"503"},"PeriodicalIF":0.0,"publicationDate":"2003-04-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"68667823","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}
Some commentators suggest that mandatory personal liability of professionals for liabilities of their firms is appropriate in light of professionals' role in Enron and other recent frauds. This liability can, indeed, help ensure that professional firms deliver on their obligations to monitor their members and clients. However, such liability is ineffective and costly. Holding professionals vicariously liable for their colleagues' defaults is unlikely significantly to increase firm monitoring. At the same time, imposing this risk on professional firm members is likely perversely to affect both professionals' incentives and the structure of their firms. Professional firms accordingly are better constrained by the market for professional services, which demands that professional firms develop significant reputations to, in effect, bond their promises to monitor. Moreover, professional services firms someday may be able to rely more on conventional financial capital to bond its monitoring promises. These alternatives to vicarious liability are constrained by legal restrictions on the size and shape of professional firms, particularly including restrictions on non-competition agreements and on ownership by non-professionals. Although these restrictions strengthen the case for vicarious liability of professional firm owners, the better approach is to deregulate professional firm structure.
{"title":"Limited Liability of Professional Firms after Enron","authors":"Larry E. Ribstein","doi":"10.2139/SSRN.397661","DOIUrl":"https://doi.org/10.2139/SSRN.397661","url":null,"abstract":"Some commentators suggest that mandatory personal liability of professionals for liabilities of their firms is appropriate in light of professionals' role in Enron and other recent frauds. This liability can, indeed, help ensure that professional firms deliver on their obligations to monitor their members and clients. However, such liability is ineffective and costly. Holding professionals vicariously liable for their colleagues' defaults is unlikely significantly to increase firm monitoring. At the same time, imposing this risk on professional firm members is likely perversely to affect both professionals' incentives and the structure of their firms. Professional firms accordingly are better constrained by the market for professional services, which demands that professional firms develop significant reputations to, in effect, bond their promises to monitor. Moreover, professional services firms someday may be able to rely more on conventional financial capital to bond its monitoring promises. These alternatives to vicarious liability are constrained by legal restrictions on the size and shape of professional firms, particularly including restrictions on non-competition agreements and on ownership by non-professionals. Although these restrictions strengthen the case for vicarious liability of professional firm owners, the better approach is to deregulate professional firm structure.","PeriodicalId":83094,"journal":{"name":"The Journal of corporation law","volume":"29 1","pages":"427"},"PeriodicalIF":0.0,"publicationDate":"2003-04-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"68673903","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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