Archive for the ‘International Corporate Governance & Regulation’ Category

Capital Allocation and Delegation of Decision-Making Authority within Firms

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday December 18, 2014 at 9:11 am
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Editor’s Note: The following post comes to us from John GrahamCampbell Harvey, and Manju Puri, all of the Finance Area at Duke University.

In our paper, Capital Allocation and Delegation of Decision-Making Authority within Firms, forthcoming in the Journal of Financial Economics, we use a unique data set that contains information on more than 1,000 Chief Executive Officers (CEOs) and Chief Financial Officers (CFOs) around the world to investigate the degree to which executives delegate financial decisions and the circumstances that drive variation in delegation. Our results can be grouped into four themes.

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New ISDA Protocol Limits Buy-Side Remedies in Financial Institution Failure

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday December 14, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Stephen D. Adams, associate in the investment management and hedge funds practice groups at Ropes & Gray LLP, and is based on a Ropes & Gray publication by Mr. Adams, Leigh R. Fraser, Anna Lawry, and Molly Moore.

The ISDA 2014 Resolution Stay Protocol, published on November 12, 2014, by the International Swaps and Derivatives Association, Inc. (ISDA), [1] represents a significant shift in the terms of the over-the-counter derivatives market. It will require adhering parties to relinquish termination rights that have long been part of bankruptcy “safe harbors” for derivatives contracts under bankruptcy and insolvency regimes in many jurisdictions. While buy-side market participants are not required to adhere to the Protocol at this time, future regulations will likely have the effect of compelling market participants to agree to its terms. This change will impact institutional investors, hedge funds, mutual funds, sovereign wealth funds, and other buy-side market participants who enter into over-the-counter derivatives transactions with financial institutions.

Among the key features of the Protocol are the following:

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Basel Committee Adopts Net Stable Funding Ratio

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday December 13, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Debevoise & Plimpton LLP and is based on the introduction to a Debevoise & Plimpton Client Update; the full publication is available here.

On October 31, 2014, the Basel Committee on Banking Supervision (the “Basel Committee”) released the final Net Stable Funding Ratio (the “NSFR”) framework, which requires banking organizations to maintain stable funding (in the form of various types of liabilities and capital) for their assets and certain off-balance sheet activities. The NSFR finalizes a proposal first published by the Basel Committee in December of 2010 and later revised in January of 2014. Particularly given the historical trend as between the Basel Committee and U.S. banking agency implementation and in line with its Halloween release, it has left many wondering: Is it a trick or a treat?

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Three Pathways to Global Standards: Private, Regulator, and Ministry Networks

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday December 4, 2014 at 9:14 am
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Editor’s Note: The following post comes to us from Stavros Gadinis of University of California, Berkeley Law School.

Scores of governments around the world have chosen to introduce international standards as domestic law, even though they were not legally obliged to do so. The drafters of these standards are not sovereigns or international organizations, but transnational regulatory networks: informal meetings of experts from various countries, some with government affiliations, and others without. Networks have puzzled scholars for years. Fascinated by the institutional novelty of the network phenomenon, some theorists praised their speed, informality, and lack of hierarchy. Others were not so enthralled. They were concerned about the influence of interest groups or the weight of big countries. This debate has examined both the inputs to the network phenomenon—preferences—and the outputs—global coordination—but has not discussed the mechanism: how do we get from preferences to standards? How do these networks come together, what is their strategy for their success? My new study, Three Pathways to Global Standards: Private, Regulator, and Ministry Networks, seeks to open up the black box of network standard setting and analyze these mechanisms. It proposes a new theoretical framework that distinguishes among private, regulator, and ministry networks, and presents empirical evidence that illustrates why these three network types appeal to different countries for different reasons.

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Methods for Multicountry Studies of Corporate Governance

Posted by Bernard Black, Northwestern University School of Law, on Wednesday December 3, 2014 at 9:00 am
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Editor’s Note: Bernard Black is the Nicholas D. Chabraja Professor at Northwestern University School of Law and Kellogg School of Management. The following post is based on a paper co-authored by Professor Black, Professor Antonio Gledson de Carvalho of Fundacao Getulio Vargas School of Business at Sao Paulo, Professor Vikramaditya Khanna at the University of Michigan, Professor Woochan Kim at Korea University Business School and Professor Burcin Yurtoglu at WHU – Otto Beisheim School of Management. Work from the Program on Corporate Governance about the relationship between corporate governance and firm value includes Learning and the Disappearing Association between Governance and Returns by Lucian Bebchuk, Alma Cohen, and Charles C. Y. Wang (discussed on the Forum here).

There is a vast and growing literature using multi-country studies to examine the effects of corporate governance on firm value. In our paper, Methods for Multicountry Studies of Corporate Governance: Evidence from the BRIKT Countries, forthcoming in the Journal of Econometrics and recently made publicly available on SSRN, we explore the empirical challenges in multicountry studies of the effect of firm-level corporate governance on firm market value, focusing on emerging markets, and propose methods to respond to those challenges. Our study has implications for multicountry studies in other spheres as well.

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Operational Risk Capital: Nowhere to Hide

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday November 22, 2014 at 10:39 am
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Editor’s Note: The following post comes to us from PricewaterhouseCoopers LLP and is based on a PwC publication by Dietmar Serbee, Helene Katz, and Geoffrey Allbutt; the complete publication, including appendix and footnotes, is available here.

The Basel Committee on Banking Supervision (BCBS) last month proposed revisions to its operational risk capital framework. The proposal sets out a new standardized approach (SA) to replace both the basic indicator approach (BIA) and the standardized approach (TSA) for calculating operational risk capital. In our view, four key points are worth highlighting with respect to the proposal and its possible implications:
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Creeping Acquisitions in Europe

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday November 5, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Luca Enriques, Allen & Overy Professor of Corporate Law at University of Oxford, Faculty of Law, and Matteo Gatti of Rutgers School of Law–Newark.

Creeping acquisitions—surreptitious grabs of a public company’s control without the prior launch of a formal tender offer—had long been considered a thing from the past in corporate America: poison pills kept this acquisition technique at bay. After Sotheby’s, Allergan and similar “wolf pack”-styled hedge fund activists’ campaigns, some fear creeping acquisitions might be back.

Other than in the U.S., becoming targets of a creeping acquisition has never ceased to be a real possibility for European companies with a dispersed ownership structure: without pills or analogue structural defenses available (or, at least, in place), they run the risk of being taken over through such an acquisition technique. Indeed, acquirers have made significant attempts to that effect over the last decade or so—sometimes successfully (Schaeffler’s takeover of Continental, Lactalis’ acquisitions of Parmalat), sometimes not (LVMH’s failed attack on Gucci, Nasdaq’s attempt at the London Stock Exchange Group). In our paper Creeping Acquisitions in Europe: Enabling Companies to Be Better Safe than Sorry, we analyze the level and type of protections European companies can find in the law (whether EU or national) and via private ordering (which of course is constrained by the law itself).

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Buybacks Around the World

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday November 4, 2014 at 9:14 am
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Editor’s Note: The following post comes to us from Alberto Manconi of the Department of Finance at Tilburg University and Urs Peyer and Theo Vermaelen, both of the Finance Area at INSEAD.

Due to regulatory changes, share repurchases have become increasingly common around the world in the last 15 years. As such, in our paper, Buybacks Around the World, which was recently made publicly available on SSRN, we first examine whether the findings based on U.S. data hold up in an international setting, and whether examining non-U.S. data can change the way we think about buybacks. Second, we examine whether the original concerns about managers using buybacks to prop up the share price were somewhat warranted in countries outside the U.S.

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Mutual Funds and Information Diffusion: The Role of Country-Level Governance

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday October 29, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Chunmei Lin of the Department of Business and Economics at Erasmus University Rotterdam; Massimo Massa, Professor of Finance at INSEAD; and Hong Zhang of the PBC School of Finance, Tsinghua University.

If the institutions of a country (e.g., property rights and contracting institutions) jeopardize the quality of its financial market, can the market by itself put in force corrective mechanisms that counterbalance and offset such negative impact? This question is at the core of modern financial economics because it essentially asks whether the market plays a more fundamental role than institutions in shaping modern financial activities, or the other way around. While the role of institutions has many facets and is subtle in nature, in our paper, Mutual Funds and Information Diffusion: The Role of Country-Level Governance, forthcoming in the November issue of the Review of Financial Studies, we focus on one unique element of the market—the global mutual fund industry—to provide some new insights.

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APG Asset Management Issues Remuneration Guidelines

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday October 17, 2014 at 9:06 am
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Editor’s Note: The following post comes to us from David Shammai, Senior Governance Specialist and Martijn Olthof, Senior Portfolio Manager, both at APG Asset Management. APG’s remuneration guidelines are available here.

One of the world largest fiduciary asset managers, APG recently issued remuneration guidelines that will be applied to its portfolio of European listed companies. APG believes that the innovation in the new guidelines is twofold. First in that they are based on its practical experience of company engagements and therefore reflect an integrated investment and governance outlook. More specifically, the guidelines place a clear emphasis on value creation. By issuing the guidelines APG is aiming to make its ongoing discussions with companies around pay more effective, thus freeing up time for it to focus on other important corporate governance areas such as board structure, succession and nominations.

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