There has been an exponential growth in interest in comparative company law in recent years. For example, in the period from 2002 to 2011, no fewer than ten monographs or edited collections were published exploring this new field of enquiry. The burgeoning literature was mirrored by an increase in University Postgraduate courses or programs in comparative company law and corporate governance. Moreover, the dissolution of trade barriers and mass cross-border capital flows engendered by the forces of competition and globalization have necessitated legal practitioners to be conversant with the company laws of jurisdictions other than their own.

In Mathias Siems and David Cabrelli (eds.), Comparative Company Law: A Case Based Approach, Hart Publishing, 2013 (publisher’s website; introduction on SSRN) we have aimed to fill an important gap in this field. Existing books on comparative company law tend to focus on the institutional structure of the corporation but this approach risks overlooking specific cases and how the issues arising from disputes are resolved in different jurisdictions. For example, topics related to directors’ liability, creditor protection and shareholders’ rights may best be understood by analyzing how selected hypothetical cases would be solved in different countries.

…continue reading: Comparative Company Law: Case Based Approach

Is there a competition for corporate charters in Europe? Corporate and comparative scholars have been discussing the similarities between the Delaware-led competition in the United States with the slowly emerging market for corporate legal forms in the European Union.

In my recent paper, Corporate Mobility in the European Union – a Flash in the Pan? An empirical study on the success of lawmaking and regulatory competition, recently made available on SSRN, I provide new empirical evidence on the development of the market for incorporations in Europe, and on the impact of national law reforms.

Since the seminal Centros case in 1999, European entrepreneurs have been allowed to select foreign legal forms to govern their affairs. While much academic effort has been spent to evaluate the early market reactions to this case-law, effectively opening up the European market, relatively little attention has been devoted to subsequent developments. This is surprising, since the various national lawmakers’ responses to the wave of entrepreneurial migration offer a rare glimpse on the effects of regulatory competition and subsequent business’ reaction, as well as on the relevance and effects of lawmaking and regulatory responses to market pressure.

…continue reading: Corporate Mobility and Regulatory Competition in Europe

Some 5 ½ years out from the Autumn 2008 Lehman Brothers collapse, the massive effort by the world’s leading economies to reset the regulation of the financial system is now entering its final stages. The momentum for reform remains strong, particularly with respect to shadow banking. But the main elements of the 2008-2009 G20 regulatory agenda are now in place. In the EU, for example, recent weeks have seen agreement on the Capital Requirements Directive IV, which implements the Basel III agreement and is one of the final elements of the EU’s crisis-era reform programme. Internationally, the regulatory perimeter has extended significantly, new regulatory tools and styles have been developed, and institutional structures have been reformed and replaced. The critical implementation phase is now well underway; the new EU regime has rapidly been intensified by a host of implementing rules; the behemoth US Dodd Frank Act is being subject to similar intensification. The review process is already gathering stream; the EU’s crisis-era short selling regime and its new institutional structure for financial system supervision are both to be reviewed over 2013. It is time to take stock.

In our new book, The Regulatory Aftermath of the Global Financial Crisis we (Eilís Ferran, Niamh Moloney, Jennifer Hill, and John C. Coffee Jr.) examine the forces which have shaped the international regulatory reform process and consider the likely legacy effects of the crisis-era. The book adopts a comparative approach. It examines in detail how the EU and the US – two major world economies heavily affected by the financial crisis – responded to the crisis. But it also considers the Australian experience and probes why the Australian regulatory system and economy proved resilient over the financial crisis and the reforms which it has, nonetheless, experienced. Comparison of these three major economies and how they performed over a period of extreme stress tells us much about the complex regulatory, political and economic ecosystems of which financial markets are a part.

…continue reading: The Regulatory Aftermath of the Global Financial Crisis

Banks are special, so is corporate governance of banks. It differs considerably from general corporate governance. Specific corporate governance needs exist also for insurance companies and other financial institutions. This article, Better Governance of Financial Institutions, analyzes the economic, legal and comparative research on governance of financial institutions and covers the reforms by the European Commission, the European Banking Authority, CDR IV and Solvency II up to the end of 2012. External corporate governance, in particular by the market of corporate control (takeovers), is more important for firms than for banks, at least under continental European practice.

For financial institutions, the scope of corporate governance goes beyond the shareholders (equity governance) to include debtholders, insurance policy holders and other creditors (debt governance). Some include the state as stakeholder, but the role of the state is better understood as setting the rules of the game in a regulated industry. From the perspective of supervision debt governance is the primary governance concern. Equity governance and debt governance face partly parallel and partly divergent interests of management, shareholders, debtholders and other creditors, and supervisors. Economic theory and practice show that management tends to be risk-averse for lack of diversification but may be more risk-prone because of equity-based compensation in end games and under similar circumstances. Shareholders are risk-prone and interested in corporate governance. Debtholders are risk-averse and interested in debt governance. Supervisors are risk-averse and interested in maintaining financial stability and in particular in preventing systemic crises.

…continue reading: Better Governance of Financial Institutions

Motivating an investigation of bank regulation and supervision is easy. One can point to the global banking crisis of 2007-2009, the banking problems still plaguing many European countries in 2013, and the more than 100 systemic banking crises that have devastated economies around the world since 1970. All these crises reflect, at least partially, defects in bank regulation and supervision. One can also point to research showing that banks matter for human welfare beyond periodic crises. Banks influence economic growth, poverty, entrepreneurship, labor market conditions, and the economic opportunities available to people. Thus, examining the type and impact of bank regulatory and supervisory policies in countries is a critical area of inquiry.

The problem, however, is that measuring bank regulation and supervision around the world is hard. Hundreds of laws and regulations, emanating from different parts of national and local governments, define policies regarding bank capital standards, the entry requirements of new domestic and foreign banks, bank ownership restrictions, and loan provisioning guidelines. Numerous pages of regulations in most countries delineate the permitted activities of banks and provide shape and substance to deposit insurance schemes and the nature and timing of the information that banks must disclose to regulators and the public. And, extensive statutes define the powers of regulatory and supervisory officials over banks — and the limits of those powers. There are daunting challenges associated with acquiring data on all of the laws, regulations, and practices that apply to banks in countries and then aggregating this information into useful statistics that capture different and important aspects of regulatory regimes. This helps explain why the systematic collection of data on bank regulatory and supervisory policies is only in its nascent stages. Yet, without sound measures of banking policies across countries and over time, researchers will be correspondingly constrained in assessing which policies work best to promote well-functioning banking systems, and in proposing socially beneficial reforms to banking policies in need of improvement.

…continue reading: Bank Regulation and Supervision in 180 Countries from 1999 to 2011

In our annual missive last year, we wrote about the need to restore trust in our system of corporate governance generally and in relations between boards of directors and shareholders specifically. We continue to be troubled by the tensions that have developed over roles and responsibilities in the corporate governance framework for public companies. The board’s fundamental mandate under state law – to “manage and direct” the operations of the company – is under pressure, facilitated by federal regulation that gives shareholders advisory votes on subjects where they do not have decision rights either under corporate law or charter. Some tensions between boards and shareholders are inherent in our governance system and are healthy. While we are concerned about further escalation, we do not view the current relationship between boards and shareholders as akin to a battle, let alone a revolution, as some media rhetoric about a “shareholder spring” might suggest. However, we do believe that boards and shareholders should work to smooth away excesses on both sides to ensure a framework in which decisions can be made in the best interests of the company and its varied body of shareholders.

…continue reading: Preserving Balance in Corporate Governance

Since 2003, Fenwick has collected a unique body of information on the corporate governance practices of publicly traded companies that is useful for all Silicon Valley companies and publicly-traded technology and life science companies across the U.S. as well as public companies and their advisors generally. Fenwick’s annual survey covers a variety of corporate governance practices and data for the companies included in the Standard & Poor’s 100 Index (S&P 100) and the high technology and life science companies included in the Silicon Valley 150 Index (SV 150). [1] In this report, we present statistical information for a subset of the data we have collected over the years. These include:

…continue reading: Corporate Governance at Silicon Valley Companies 2012

Corporate managers, bankers, and policy makers alike have expressed concerns that the recent dearth of initial public offerings (IPOs) has caused a breakdown in the engine of innovation and growth. In the paper, Does Going Public Affect Innovation?, which was recently made publicly available on SSRN, I explore whether the transition to public equity markets indeed affects innovation, and if so, how. Theoretically, the effect of IPOs on innovation is ambiguous. On the one hand, going public provides improved access to capital that may allow firms to enhance their innovative activities; on the other hand, market pressures and potential departure of employees following the IPO may lead to opposite results.

To answer this question, I use standard patent-based metrics to capture changes in innovative activity in the years around the IPO and focus on three important dimensions of firms’ innovative activity: internally generated innovation, the productivity and mobility choices of individual inventors, and the acquisition of external innovation.

…continue reading: IPOs and Innovation

In the paper, The Pension System and the Rise of Shareholder Primacy, which was recently made publicly available on SSRN, I explore the influence of the pension system on corporate governance, particularly shareholder primacy and the relationship between corporations and their employees. Today it is widely accepted among business managers, scholars of corporate law and financial economists that the objective of corporate law and corporate governance should be to promote shareholders wealth (as opposed to a wider community of interests, including employees, creditors, suppliers, customers and local communities). Shareholder capitalism is, however, a relatively recent development. Large, publicly-traded corporations in the middle of the 20th century were characterized by managerial capitalism: managers had taken over the role of entrepreneurs within the firm, and compared to their predecessors they were hardly accountable to owners. Economists sometimes saw this as an advance over previous periods characterized by dominant founders, given that the system seemed more rational and stable. Around 1980, managerial capitalism began to give way to investor capitalism. Hostile takeovers, and later equity-based executive compensation, began to emerge as the new forces creating incentives for managers to focus on share value.

…continue reading: The Pension System and the Rise of Shareholder Primacy

In our paper, Market Reaction to Corporate Press Releases, we provide a comprehensive investigation of how financial markets process various types of corporate news. The study argues that the importance of firm-level announcements should be assessed not only by investigating immediate stock price reactions but also by assessing their effect on firms’ informational environment.

This study became possible because of two important financial regulations that made corporate press releases a prevalent method of communicating new firm-level news to investors, Regulation Fair Disclosure, adopted in 2000 and the Sarbanes-Oxley Act implemented in 2002. These regulations mandate that publicly traded firm must disclose all private information that may have an impact on their market values and report changes in their “financial conditions and operations” in a timely fashion and simultaneously to all market participants. Firms routinely employ press releases as a way of achieving these objectives.

The dataset of corporate press releases was collected from a variety of newswire services, such as PR Newswire, BusinessWire, GlobeNewswire, and the like. The resulting dataset contains nearly all corporate press releases issued during the time period under investigation. Press releases are then classified into 60 news categories, formed with an objective of achieving a relative homogeneity in the news content within each category. While many types of financial announcements have been investigated in prior literature, a large number of other news categories have not due to the difficulty of collecting data.

…continue reading: Market Reaction to Corporate Press Releases