Blue Sky Meetings - AY's Fall 2007 through Spring 2010
September 23, 2009, Wei Jiang, Finance and Economics Division of CU Graduate School of Business
Topic of Discussion - "Do Institutional Investors Have an Ace up Their Sleeves? --Evidence from Confidential ilings of Porfolio Holdings," Authored with Vikas Agarwal, Yuehua Tang & Baozhong Yang
Abstract - This paper studies the holdings by institutional investors that are filed with a significant delay through amendments to Form 13F and that are not included in the standard 13F holdings databases. We examine these confidential holdings and find that asset management firms (hedge funds and investment companies/advisors) are more likely to seek confidentiality compared to banks and insurance companies. The confidential holdings are disproportionately associated with information-sensitive events such as mergers and acquisitions, and include stocks subjected to greater information asymmetry. Moreover, the confidential holdings of asset management firms exhibit superior risk-adjusted performance over the horizon of two to six months, suggesting that these institutions may possess short-lived information. Our study highlights the tension between the regulators, public, and investment managers regarding the ownership disclosure, and provides new evidence in estimating the level as well as the cross-sectional differences in the performance of different types of institutional investors.
October 29, 2008, Enrico Perotti, University of Amsterdam, Department of Financial Mangement
Topic of Discussion - "Access to Justice, Contract Standardization and Legal Innovation," Co-author, Nicola Gennaioli, CREI, UPF
Abstract - Contract standardization is the norm in most transactions, easily explained by transaction costs. While any agent can choose to offer standard terms, only institutions (trade associations, trading platforms or the government) with some ex post enforcement capacity can offer standardized enforcement. Streamlining litigation reduces the distortions caused by more resourceful parties who have a comparative advantage in collecting favorable evidence. We show that standardization increases the gain and the volume of trade, especially among unequal parties. However, it hampers contractual innovation by stifling the use of nonstandard, more contingent contracts which promote judicial learning. Our model sheds light on the emergence in the XIX century, also in common law countries, of commercial statutes codifying specific contracts, as well as the emergence of private standards enforced by trade associations and stock exchanges, in response to booming long distance trade and financial intermediation.
March 26, 2008, Alexander Stremitzer, Rheinische Friedrich-Wilhelms - University of Bonn, Department of Economics,
Topic of Discussion - "Standard Breach Remedies, Quality Thresholds, and Cooperative Investments"
Abstract - When investments are non-verifiable, inducing cooperative investments with simple contracts may not be as difficult as previously thought. Indeed, modeling "expectation damages" close to legal practice, we show that the default remedy of contract alw induces the first best. Hence, there is no need for privately stipulated remedies. Yet, in order to lower informational requirements of courts, parties may opt for a specific pe4rformance" regime which grants the breached-against buyer an option to choose "restitution" if the tender's value falls below some (arbitrarily chosen) quality threshold. Inorder to implement this regime, no more information needs to be verifiable than is implicitly assumed in Hart and Moore (1988).
February 11, 2008 - Suzanne Scotchmer, University of California, Berkeley School of Law
Topic of Discussion - "Scarcity of Ideas and Options to Invest in R & D," authored with Nisvan Erkal
Abstract - We consider a model of the innovative environment where there is a distinction between ideas for R&D investments and the investments themselves. We investigate the optimal reward policy and how it depends on whether ideas are scarce or obvious. By foregoing investment in a current idea, society as a whole preserves an option to invest in a better idea for the same market niche, but with delay. Because successive ideas may occur to different people, there is a conflict between private and social optimality. We argue that private incentives to create socially valuable options can be achieved by giving higher rewards where "ideas are scarce." We then explore how rewards should be structured when the value of an innovation comes from its applications, and ideas for the innovation may be more or less scarce than ideas for the applications.
April 16, 2007 - Curtis Milhaupt and Benjamin Liebman, Columbia University, School of Law
Topic of Discussion - "Reputational Sanctions in China's Securities Market"
Paper currently unavailable.
March 28, 2007 - Alex Raskolnikov, Columbia University, School of Law
Topic for Discussion - "Relational Tax Plannig Under Risk-Based Rules"
(Preliminary draft of paper not available)
March 21, 2007 - Geoffrey Miller, New York University Law School and Theodore Eisenberg, Cornell Law School
Topic for Discussion - "Flight to New York: An Empirical Analysis of Choice of Law and Forum Selection in Major Corporate Contracts"
Abstract - We study choice of law and choice of forum in a data set of 2,865 contracts contained as exhibits in Form 8-K filings by reporting corporations over a six month period in 2002 for twelve types of contracts and a seven month period in 2002 for merger contracts.These material contracts likely are carefully negotiated by sophisticated parties who are well-informed about the contract terms.They therefore provide evidence of efficient ex ante solutions to contracting problems.In prior work examining merger contracts, we found evidence of a flight from
Delaware .Acquiring firms incorporated in Delaware tended to select Delaware law or a Delaware forum to govern disputes under the merger agreements less frequently than firms in other states (New York in particular) specified the law or forum of those states.For the full sample of contracts analyzed here, the contracting parties rarely opt for Delaware law other than for merger contracts and contracts establishing
Delaware business trusts.New York law is the favored choice, with New York the choice of law in 46 percent of the contracts and
Delaware , the second most frequent selection, the choice of law in 15 percent of the contracts.New York law was overwhelmingly favored for financing contracts, but was also preferred for most other types of contracts.With respect to choice of forum, the major finding is that a litigation forum was specified only for 39 percent of the contracts.Among those 39 percent of contracts, New York is the favored forum, accounting for 41 percent of the choices, with
Delaware a distant second and accounting for 11 percent of the forum choices.When a forum is specified it usually matches the contract’s choice of law.We also explore the decision to designate a forum and mismatches between choice of law and choice of forum. Overall, New York law plays a role for major corporate contracts similar to the role
Delaware law plays in the limited setting of corporate governance disputes.
October 25, 2006 - Mark J. Roe, Harvard Law School
Topic for Discussion - "Legal Origins and Modern Stock Markets"
Abstract - Legal origin - civil vs. common law - is said in central modern academic work to determine the structure of corporate ownership, even among the world's richer nations. The main means are two: First, common law judges protect minority stockholders better than do civil law systems. Second, common law systems regulate markets less rigidly than civil law systems and protect property more, systematically promoting transparency and markets. But, I show here, while stockholder protection and property rights are important, legal origin is not their foundation.
Modern politics is an alternative explanation for differing ownership structures and the differing depth of securities markets in the world's richest nations. Some legislatures respect property and stock markets, instructing their regulators to promote financial markets; some don't. The interests and ideologies that dominated in the world's richest nations have differed over the last half-century and these differences in national politics are better positioned to explain differing corporate ownership structures and the differing importance of stock markets than legal origins.
Modern history quite plausibly made one collection of the world's richer nations sympathize with stock markets, or at least tolerate their disruptions, and another antagonistic. Brute facts of the 20th century - the total devastation of many key nations, wrecking many of their prior institutions - predict modern post-war financial markets' strength well, and are robust to distant legal origins from centuries ago. Nearly every core civil law nation in the 20th century suffered military invasion and occupation - the kinds of systemic shock that destroy even strong institutions - while no core common law nation collapsed under that kind of catastrophe. These 20th century facts tie to post-World War II legislative policy decisions and political configurations - a risk averse polity was interested in tasks other than building strong financial markets - in ways that suggest that policy trumps origins. For example - we'll see more - remember that for the first decades after World War II fighting communism was central to the domestic political agenda in west Europe and east Asia. This strongly affected policies toward capital markets through the 1980s. This kind of a political economy theory packs as much explanatory power as a legal origins-based one for capital markets and corporate ownership differences around the developed world. Pursuing this line of research - how the early 20th century's institutional destruction affected post-War, late 20th century paths - should prove more fruitful than continuing to focus on legal origin.
While there's an academic edge to the inquiry - why have the world's richer nations had differing financial and corporate systems in the past several decades that are only now becoming similar? - there's a powerful normative punch to the analysis here: international development agencies, such as the World Bank, have used the legal origins academic literature to inform their policy prescriptions, which have often been that the developing nations emulate common law corporate law institutions and reject regulatory ones associated with the civil law. But if the legal origins literature has misunderstood the causes of financial and corporate differences in the wealthy West - as I argue it has - then the agencies may be making mistakes, perhaps deterring instead of propelling economic development in the world's poorer nations.
April 19, 2006 - Robert K. Rasmussen - Vanderbilt University Law School
Topic for Discussion - "Empirically Bankrupt"
Abstract - Empirical legal scholarship endeavors to resolve disputes that are indeterminate at the level of theory. The nature of empirical claims, however, requires that consumers of this work bring a healthy dose of skepticism to any of these projects. Three recent works in the area of corporate reorganizations illustrate how a project that appears on its face to settle scholarly debate can rest on choices that the researcher made rather than on the data itself. One of these works seeks to discredit proposals to make bankruptcy law a default rule rather than a mandatory rule, but it draws its data from a sample half of which is made up of individuals, who by definition are outside the reach of the proposed reform. Moreover, the entire sample omits publicly held corporations, the main target of the reform being examined. The second article discredits prior reorganization practice, but only by establishing a standard that no bankruptcy system has ever satisfied. The third piece concludes that competition for large Chapter 11 cases has corrupted our bankruptcy system, but the empirical basis for this conclusion rests on combining fundamentally different types of bankruptcy cases. For empirical work to be credited, at a minimum, it has to look in the right place, ask the right question and draw the right inferences. When empirical work fails to cross this threshold, it conclusions must be rejected.
March 20, 2006 - Brian J.M. Quinn - Stanford Graduate Student
Topic for Discussion- "Structuring Transactions Around Opportunism: Fruit Markets in the Mekong Delta," Authored with P. Eli Mazur and Vu Thanh Tu Anh
Abstract - At first glance, the market for fruit in the Mekong Delta appears to be a model of efficiency. Large numbers of farmers offer their fruit for sale to the many middlemen who travel up and down the canals and waterways of the Mekong Delta competing for purchases. However, the inability of exporters to meet price and quality demands of the export markets points to a deeper problem. Information asymmetries between farmers and middlemen create inefficiencies that lead to higher prices and lower quality than might otherwise be expected. Farmers face ex post moral hazard risks that buyers might not pay for their contracted fruit. On the other hand, middlemen face similar information issues because farmers have an incentive to supply them with lower than contracted for quality fruit. As the legal system in Vietnam is still weak, farmers and middlemen who wish to do business must compensate by employing private ordering devices to structure their transactions around the potential for opportunism. This paper describes a market for fruit as well as a survey of farmers and middlemen presently being conducted by the authors which will provide empirical data regarding the structure of the market and the use of private ordering mechanisms in transactions in order to overcome information asymmetry problems.
December 12, 2005 - Associate Professor Ehud Kamar, University of Southern California, Gould School of Law; Visiting NYU School of Law
Topic for Discussion: - "Going-Private Decisions and the Sarbanes-Oxley Act of 2002: A Cross-Country Analysis," Co-authored with Pinar Karaca-Mandic and Eric Talley
March 29, 2005 - Zhaoxia Li, Economist at the Chinese Academy of Social Sciences
Topic for discussion, "Chinese Corporate Governance Issues"
October 19, 2004 - Professor Marcel Kahan, New York University School of Law
Topic for discussion is "The Demand for Corporate Law: Statutory Flexibility, Judicial Quality, or Takeover Protection?
This paper provides an empirical examination of the determinants of firms= decisions where to incorporate. Consistent with our theoretical predictions, we find substantial evidence that firms are more likely to incorporate in states with a high-quality judicial system and with corporate law rules that offer firms flexibility to devise their governance arrangement in areas unrelated to takeovers. We find no evidence that firms are more likely to incorporate in states with anti-takeover statutes and only weak evidence that firms avoid states with anti-takeover statutes. The latter results are consistent with the hypothesis that anti-takeover statutes have no significant effect on a company=s marginal ability to resist takeovers.
September 22, 2004 - Mats Isaksson, Head of corporate governance for the OECD
Blue Sky Meetings - AY 2003-04
July, 2004 - Professor Louis Lowenstein, Simon H.Rifkind Professor Emeritus of Finance & Law,
ColumbiaUniversity
Topic for Discussion: "A Perfect Storm: Changing a Culture"
In October, 1991, there occurred off the coast of Massachusetts a "perfect storm," a tempest created by a rare coincidence of events.In the late ‘90s, therewas another perfect storm, an also rare coincidence of forces which caused huge waves in our financial markets, as the NASDAQ index, for one, soared from 1200 in 1997 to 5000 in 2000 and back to 1100 in 2002.
These were the days of the New Economy - low inflation and unemployment, government surpluses, and the Internet that would change howwe work and play.Suddenly, all of us were watching crawlers on CNBC to see how rich we were.But the bubble triggered a period of unmatched and pervasive corporate fraud.Using academic blessings of stock options as the link of pay for performance, executives took huge helpings and then manipulated reported earnings to achieve the stock gains that would bring their compensation to stunning heights.In the five years ended 2003, over 1300 companies, many major, restated their earnings, and those were only the more egregious cases.
It was a broad-based, cultural failure, one that enlisted the active support, nay connivance, of the various gatekeepers, notably of course auditors, but also analysts, audit committees, bankers, and, yes, the lawyers who crafted the hollow transactions that would enable debt to disappear from balance sheets and create revenues from thin air.But then, we all wanted so much to believe.
The author brought to the article his background as a member of the Panel on Audit Effectiveness, appointed in 1998 at the instance of Chairman Levitt of the SEC, and also his longstanding skepticism about efficient market theory.
May 25, 2004 - Samuel Fraidin, John M. Olin Visiting Fellow at Center for Law and Economic Studies
Topic for discussion is "Duty of Care Jurisprudence: Comparing Judicial Intuition and Social Psychology Research"
The jurisprudence of the duty of care of corporate boards is incoherent, arbitrary, and inefficient. This paper presents proposals to resolve these problems. Corporate boards are responsible for overseeing companies and are obligated to make decisions carefully. Directors who fulfill their duty of care (as well as their duties of loyalty and good faith) are protected against liability from shareholder lawsuits by the business judgment rule, which is the principle that a court will not substitute its judgment for that of corporate directors. Courts decide duty of care claims by evaluating the decision making procedures used by the defendant directors. Group decision making procedures have been studied by social psychology researchers for nearly a century, but none of this research has been cited in any duty of care case. Instead, judges have relied on their intuition. I draw on social psychology research and a theory of group decision making to evaluate the factors courts consider when determining if directors have fulfilled their duty of care. My review indicates that certain aspects of duty of care jurisprudence are efficient, encouraging corporate directors to adopt effective decision making procedures (considering multiple alternatives, asking questions, and expressing dissent), whereas others are inefficient or arbitrary, encouraging directors to adopt procedures that are detrimental, ineffective, or have unknown effects (having long meetings, refraining from taking notes during meetings, giving directors advance notice of the matters to be discussed at meetings and routinely consulting outside financial advisors). I argue that the law would be less arbitrary and inefficient if courts focused on the factors psychology researchers have identified as important indicators of careful group decision making. I also argue that the law would be more coherent if courts adopted a theory of group decision making.
March 2, 2004 - Kate Litvak, John M. Olin Visiting Fellow at Center for Law and Economic Studies
Topic for discussion is "Venture Capital Limited Partnership Agreements: Understanding Compensation Arrangements"
This paper offers the first in-depth, "lawyerly" study of partnership agreements in the US venture capital industry. I analyze 37 partnership agreements from 17 venture firms, for funds raised mostly in the late 90s and early 2000s. Some of my main findings are surprising. First, contrary to a common belief (fostered by a single prior academic study of VC compensation), all elements of VC compensation vary significantly across funds, controlling for fund size and profitability. Second, contrary to the current academic view, VC compensation consists of three elements, rather than two (management fee and share of profits). A third essential element of VC compensation is the distribution rules that determine when VCs receive their share of profits. The shift from the most pro-investor to most pro-VC distribution regime can affect VCs' compensation as much or more than variations in management fee or percentage of profits. Third, all three elements of VC compensation correlate with each other and with fund size. Contrary to what one might expect, management fee, carry, and the distribution rule are not substitutes. Instead of raising one element of their compensation far above the industry norm, top VCs earn more across all three elements, presumably by smaller amounts.
November 5, 2003 - Erica H. Steinberger, is a partner at Latham Watkins
Topic for discussion is "Proposed Rule: Security Holder Director Nominations." Erica is chair of a City Bar group that is preparing a comment letter on the SEC's proposed rule on shareholder access to the company proxy statement to nominate directors.
Topic for discussion is, Corporations, Society and the State: A Defense of the Corporate Tax"
This article attempts to provide the first comprehensive rationale for defending the current corporate income tax. It argues that the usual reasons given for the tax (primarily as an indirect way of taxing shareholders, or alternatively as a form of benefit tax) are inadequate. It then explains what the original rationale to adopt this tax was in 1909, namely to regulate managerial power, and that this rationale stems from the "real" view of the corporation, which was the dominant view throughout the many transformations underwent by the corporate form from Roman times to the present. Turning to normative argument, the article then argues that the regulatory rationale given for taxing corporations in 1909 is still valid, since similar social conditions continue to exist, and in fact is strengthened by the rise of multinational enterprises. Finally, the article argues that this rationale is necessary from a normative perspective to support the fight against the two crucial current threats to the corporate tax posed by the corporate tax shelter and tax competition phenomena.
October 15, 2003 - Professor Ronald J. Gilson, Marc and Eva Stern Professor of Law and Business, Columbia Law School
Topic for discussion is "The Mechanisms of Market Efficiency Twenty Years Later: The Hindsight Bias"
This is a propitious time to revisit The Mechanisms of Market Efficiency ("MOME").[1]We began that project some twenty years ago, as newly minted corporate law academics[2] trying to understand what to make of a large empirical literature proclaiming the efficiency of the stock market. In an observation then offered as a simple description of the state of play, Michael Jensen had announced that "there is no other proposition in economics which has more solid empirical evidence supporting it than the Efficient Market Hypothesis."[3]But if this were so, it seemed to us that it could not be because market efficiency was a physical property of the universe arising, like gravity, in the milliseconds following the big bang.Rather, the prompt reflection of publicly available information in a security's price had to be the outcome of institutional and market interactions whose proper functioning necessarily depended on the character of those institutions.[4]Thus, MOME represented the efforts of two young scholars to understand the institutional underpinnings of the empirical phenomenon called market efficiency.
We concluded that the level of market efficiency with respect to a particular fact is dependent on which of a number of mechanisms - universally informed trading, professionally-informed trading, derivatively informed trading, and uninformed trading- operated to cause that fact to be reflected in market price.Which mechanism was operative, in turn, depended on the breadth of the fact's distribution, which in turn depended on the cost structure of the market for information.The lower the cost of information, the wider its distribution, the more effective the operative efficiency mechanism and, finally, the more efficient the market.
October 1, 2003 - Michael Garin, is Chairman of the Board, Member of the Audit Committee, ADCOM Information Services
Topic for discussion is "Professional Directors"
September 16, 2003 - Professor Jaap Winter, is a partner at De Brauw Blackstone Westbroek in Amsterdam and Professor of International Company Law at the Erasmus University of Rotterdam. He is the former legal advisor to Unilever NV.
Topic for discussion is a report by a committee Professor Winter chaired on modernizing the corporate law of the European Union
CENTER FOR LAW AND ECONOMIC STUDIES Blue Sky Meeting Speakers AY 2002-03
September 18, 2002 Victor Fleischer, Research Fellow in Transactional Studies Columbia University School of Law "The Rational Exuberance of Structuring Venture Capital Startups"
October 9, 2002 Kenneth M. Ayotte, Instructor, Columbia University Graduate School of Business "Why Do Distressed Companies Choose Delaware? Venue Choice and Court Experience in Bankruptcy," co-author David A. Skeel, Jr.
November 13, 2002 Professor Lynn A. Stout, UCLA, School of Law "Response - Do Antitakeover Defenses Decrease Shareholder Wealth? The Ex Post/Ex Ante Valuation Problem"
November 20, 2002 Professor Vikramaditya Khanna, Visiting Columbia University School of Law from Boston University School of Law "Should the Behavior of Top Management Matter?"
December 16, 2002 Professor David M. Schizer, Columbia University School of Law "Tax and Securities Law Constraints on Short Sales: The Incoherence of Current Law," authored with Martin Shubik and Michael Powers
January 14, 2003 Professor David T. Robinson, Columbia University Graduate School of Business "Contractual, Relational, and Property Rights-based Control in Biotech Strategic Alliances," co-author Toby Stuart
February 12, 2003 Kate Litvak, Law Clerk, Hon. Frank H. Easterbrook, US Court of Appeals for the 7th Circuit "Investor Passivity as a Commitment Device: The Costs and Benefits of Allocating Residual Control Away From Outside Equity Investors in Venture Capital Funds"
March 25, 2003 Professor Charles Silver, Cecil D. Redford Professor and Co-director, Center on Lawyers, Civil Justice, and the Media, University of Texas, School of Law "Class Certification and Blackmail"
