The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Corporate Law, Economic Analysis of

  • Robert Daines
  • Michael Klausner
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_2643

Abstract

Economic analysis of corporate law largely focuses on (a) the efficiency of legal rules and the proper role of the law, (b) the ways in which legal rules affect shareholders’ ability to monitor managers, and (c) the effect of limited liability on the relationship between the corporation and third parties. This article reviews the literature in each of these areas.

Keywords

Agency costs Collective action problem Contractarian conception of the corporation Corporate charters Corporate control Ccorporate governance Corporate law Corporations Federalism Hedge funds Herding Insider trading Law and economics Learning externalities Limited liability Monitoring Network externalities Ownership and control Poison pill Race to the top/bottom Shareholder activism Shareholder suits State competition Takeover defence Takeovers 
This is a preview of subscription content, log in to check access

Bibliography

  1. Admati, A.R., and P. Pfleiderer. 2000. Forcing firms to talk: Disclosure regulation and externalities. Review of Financial Studies 13: 479–519.CrossRefGoogle Scholar
  2. Aggarwal, R. and R. Williamson. 2006. Did new regulations target the relevant corporate governance attributes? Working paper, McDonough School of Business, Georgetown University.Google Scholar
  3. Alexander, J.C. 1991. Do the merits matter? A study of settlements in securities class actions. Stanford Law Review 43: 497–528.CrossRefGoogle Scholar
  4. Alexander, J.C. 1992. Unlimited shareholder liability through a procedural lens. Harvard Law Review 106: 387–445.CrossRefGoogle Scholar
  5. Ali, A., and S. Kallapur. 2001. Securities price consequences of the Private Securities Litigation Reform Act of 1995 and related events. Accounting Review 76: 431–460.CrossRefGoogle Scholar
  6. Andrade, G., M. Mitchell, and E. Stafford. 2001. New evidence and perspectives on mergers. Journal of Economic Perspectives 15(2): 103–120.CrossRefGoogle Scholar
  7. Arlen, J., and W. Carney. 1992. Vicarious liability for fraud on securities markets. University of Illinois Law Review 1992: 691–745.Google Scholar
  8. Ayres, I. 1990. Analyzing stock lock-ups: do target treasury sales foreclose or facilitate takeover options? Columbia Law Review 90: 682–718.CrossRefGoogle Scholar
  9. Bajaj, M., S. Muzumdar, and A. Sarin. 2003. Securities class action settlements: An empirical analysis. Santa Clara Law Review 43: 1001–1033.Google Scholar
  10. Bebchuk, L. 1982. The case for facilitating competing tender offers. Stanford Law Review 35: 24–47.CrossRefGoogle Scholar
  11. Bebchuk, L.A., and A. Cohen. 2003. Firms’ decisions where to incorporate. Journal of Law and Economics 46: 383–425.CrossRefGoogle Scholar
  12. Benston, G.J. 1973. Required disclosure and the stock market: An evaluation of the Securities Exchange Act of 1934. American Economic Review 63: 132–155.Google Scholar
  13. Benston, G.J., and A. Cohen. 1969. The value of the SEC’s accounting disclosure requirements. Accounting Review 44: 515–532.Google Scholar
  14. Beny, L. 2007. Insider trading laws and stock markets around the world. Journal of Corporate Law 32: 237–300.Google Scholar
  15. Black, B. 1992. Next steps in proxy reform. Journal of Corporation Law 18: 1–55.Google Scholar
  16. Black, B., B. Cheffins, and M. Klausner. 2006. Outside director liability. Stanford Law Review 58: 1055–1060.Google Scholar
  17. Bohn, J., and S.J. Choi. 1996. Fraud in the new-issues market: Empirical evidence on securities class actions. University of Pennsylvania Law Review 144: 903–964.CrossRefGoogle Scholar
  18. Carlton, D., and D. Fischel. 1983. The regulation of insider trading. Stanford Law Review 35: 857–895.CrossRefGoogle Scholar
  19. Cary, W. 1974. Federalism and corporate law: Reflections upon Delaware. Yale Law Journal 83: 663–705.CrossRefGoogle Scholar
  20. Chhaochhaira, V., and Y. Grinstein. 2004. Corporate governance and firm value: The impact of the 2002 governance rules. Working paper, Cornell University.Google Scholar
  21. Choi, S.J. 2004. The evidence on securities class actions. Vanderbilt Law Review 57: 1465–1525.Google Scholar
  22. Choi, S. 2007. Do the merits matter less after the Private Securities Litigation Reform Act? Journal of Law Economics and Organization 23: 598–626.CrossRefGoogle Scholar
  23. Choi, S., and A. Guzman. 1997. National laws, international money: Regulation in a global capital market. Fordham Law Review 65: 1855–1908.Google Scholar
  24. Choi, S.J., J.E. Fisch, and A.C. Pritchard. 2005. Do institutions matter? The impact of the Lead Plaintiff Provision of the Private Securities Litigation Reform Act. Washington University Law Quarterly 83: 869–905.Google Scholar
  25. Coase, R. 1937. The nature of the firm. Economica 4: 386–405.CrossRefGoogle Scholar
  26. Coates, J.C. IV. 2001. Explaining variation in takeover defenses: Blame the lawyers. California Law Review 89: 1301–1415.CrossRefGoogle Scholar
  27. Coates, J.C. IV, and G. Subramanian. 2002. The powerful antitakeover force of staggered boards. Stanford Law Review 54: 887–951.CrossRefGoogle Scholar
  28. Coffee, J.C. Jr. 1984. Market failure and the economic case for a mandatory disclosure system. Virginia Law Review 70: 717–753.CrossRefGoogle Scholar
  29. Coffee, J.C. Jr. 1985. The unfaithful champion: The plaintiff as monitor in shareholder litigation. Law and Contemporary Problems 48: 5–81.CrossRefGoogle Scholar
  30. Coffee, J.C. Jr. 1986. Understanding the plaintiff’s attorney: The implications of economic theory for private enforcement of law through class and derivative actions. Columbia Law Review 86: 669–727.CrossRefGoogle Scholar
  31. Comment, R., and G.W. Schwert. 1995. Poison or placebo? Evidence on the deterrence and wealth effects of modern antitakeover measures. Journal of Financial Economics 39: 3–43.CrossRefGoogle Scholar
  32. Cox, J.D. 1986. Insider trading regulation and the production of information: Theory and evidence. Washington University Law Quarterly 64: 475–505.Google Scholar
  33. Cremers, M., and V.B. Nair. 2005. Governance mechanisms and equity prices. Journal of Finance 60: 2859–2894.CrossRefGoogle Scholar
  34. Daines, R. 2001. Does Delaware law improve firm value? Journal of Finance and Economics 62: 525–558.CrossRefGoogle Scholar
  35. Daines, R. 2002. The incorporation choices of IPO firms. New York University Law Review 77: 1559–1605.Google Scholar
  36. Daines, R. 2006. Do classified boards affect firm value? Takeover defenses after the poison pill. Working paper, Stanford Law School.Google Scholar
  37. Daines, R., and C. Jones. 2007. Mandatory disclosure, asymmetric information and liquidity: The impact of the 1934 Act. Working paper, Law School, Stanford University.Google Scholar
  38. Daines, R., and M. Klausner. 2001. Do IPO charters maximize firm value? Antitakeover protection in IPOs. Journal of Law Economics and Organization 17: 83–120.CrossRefGoogle Scholar
  39. Dye, R.A. 1990. Mandatory v. voluntary disclosures: The cases of financial and real externalities. Accounting Review 65: 1–24.Google Scholar
  40. Easterbrook, F., and D. Fischel. 1982. Auctions and sunk costs in tender offers. Stanford Law Review 35: 1–19.CrossRefGoogle Scholar
  41. Easterbrook, F., and D. Fischel. 1985. Optimal damages in securities cases. University of Chicago Law Review 52: 611–642.CrossRefGoogle Scholar
  42. Easterbrook, F., and D. Fischel. 1989. The corporate contract. Columbia Law Review 89: 1416–1448.CrossRefGoogle Scholar
  43. Easterbrook, F., and D. Fischel. 1991. The economic structure of corporate law. Cambridge, MA: Harvard University Press.Google Scholar
  44. Faleye, O. 2007. Classified boards, firm value, managerial entrenchment. Journal of Financial Economics 83: 501–529.CrossRefGoogle Scholar
  45. Field, L.C., and J.M. Karpoff. 2002. Takeover defenses of IPO firms. Journal of Finance 57: 1857–1889.CrossRefGoogle Scholar
  46. Fraidin, S., and J. Hanson. 1994. Toward unlocking lockups. Yale Law Journal 103: 1739–1834.CrossRefGoogle Scholar
  47. Gilson, R. 1982. Seeking competitive bids versus pure passivity in tender offer defense. Stanford Law Review 35: 51–67.CrossRefGoogle Scholar
  48. Gilson, R.J., and A. Schwartz. 2001. Sales and elections as methods for transferring corporate control. Theoretical Inquiries in Law 2: 783–814.CrossRefGoogle Scholar
  49. Gompers, P.A., J.L. Ishii, and A. Metrick. 2003. Corporate governance and equity prices. Quarterly Journal of Economics 118: 107–155.CrossRefGoogle Scholar
  50. Goshen, G. and G. Parchomovsky. 2000. On insider trading, markets, and ‘negative’ property rights in information. Fordham Law and Economics Research Paper No. 06.Google Scholar
  51. Greenstone, M., P. Oyer, and A. Vissing-Jorgensen. 2006. Mandated disclosure, stock returns, and the 1964 Securities Acts Amendments. Quarterly Journal of Economics 121: 399–460.CrossRefGoogle Scholar
  52. Grossman, S.J. 1981. The information role of warranties and private disclosure about product quality. Journal of Law and Economics 24: 461–483.CrossRefGoogle Scholar
  53. Grundfest, J.A. 1992. The limited future of unlimited liability: A capital markets perspective. Yale Law Review 102: 387–425.CrossRefGoogle Scholar
  54. Hansmann, H. 2006. Corporation and contract. American Law and Economics Review 8: 1–19.CrossRefGoogle Scholar
  55. Hansmann, H., and R. Kraakman. 1991. Toward unlimited shareholder liability for corporate torts. Yale Law Review 100: 1879–1934.CrossRefGoogle Scholar
  56. Hansmann, H., and R. Kraakman. 2000. The essential role of organizational law. Yale Law Journal 110: 387–440.CrossRefGoogle Scholar
  57. Hu, H., and B. Black. 2006. The new vote buying: Empty voting and hidden ownership. Southern California Law Review 79: 811–908.Google Scholar
  58. Jain, P., and Z.J. Rezaee. 2006. The Sarbanes–Oxley Act of 2002 and capital-market behavior: Early evidence. Contemporary Accounting Research 23: 629–654.CrossRefGoogle Scholar
  59. Jensen, M.C., and W.H. Meckling. 1976. Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics 3: 303–360.CrossRefGoogle Scholar
  60. Johnson, M., R. Kasanik, and K. Nelson. 2000a. Shareholder wealth effects of the Private Securities Litigation Reform Act of 1995. Review of Accounting Studies 5: 217–233.CrossRefGoogle Scholar
  61. Johnson, M., K. Nelson, and A. Pritchard. 2000b. In re Silicon Graphics Securities Litigation: Shareholder wealth effects of the interpretation of the Private Securities Litigation Reform Act’s pleading standard. Southern California Law Review 73: 773–809.Google Scholar
  62. Johnson, M., R. Kasznik, and K. Nelson. 2001. The impact of securities litigation reform on the disclosure of forward-looking information. Journal of Accounting Research 39: 297–328.CrossRefGoogle Scholar
  63. Kahan, M. 2006. The demand for corporate law: Statutory flexibility, judicial quality, or takeover protection. Journal of Law, Economics, & Organization 22: 340–365.CrossRefGoogle Scholar
  64. Kahan, M., and E. Kamar. 2002. The myth of state competition in corporate law. Stanford Law Review 55: 679–760.CrossRefGoogle Scholar
  65. Kahan, M., and M. Klausner. 1996. Path dependence in corporate contracting: Increasing returns, herd behavior and cognitive biases. Washington University Law Quarterly 74: 347–366.Google Scholar
  66. Kahan, M., and M. Klausner. 1997. Standardization and innovation in corporate contracting (or ‘The economics of boilerplate’). Virginia Law Review 83: 713–755.CrossRefGoogle Scholar
  67. Kahan, M., and E. Rock. 2007. Hedge funds in corporate governance and corporate control. University of Pennsylvania Law Review (forthcoming).Google Scholar
  68. Klausner, M. 1995. Corporations, corporate law, and networks of contracts. Virginia Law Review 81: 757–833.CrossRefGoogle Scholar
  69. Klausner, M. 2006. The contractarian theory of corporate law: A generation later. Journal of Corporate Law 31: 779–797.Google Scholar
  70. Kraakman, R. 1991. The legal theory of insider trading regulation in the United States. In European insider dealing, ed. K. Hopt and E. Wymeerisch. London: Butterworths.Google Scholar
  71. La Porta, R., F. Lopez-de-Silanes, A. Shleifer, and R.W. Vishny. 1997. Legal determinants of external finance. Journal of Finance 52: 1131–1150.CrossRefGoogle Scholar
  72. La Porta, R., F. Lopez-de-Silanes, A. Shleifer, and R.W. Vishny. 1998. Law and finance. Journal of Political Economy 106: 1113–1155.CrossRefGoogle Scholar
  73. Langevoort, D.C. 1996. Capping damages for open-market securities fraud. Arizona Law Review 38: 639–668.Google Scholar
  74. Li, H., Pincus, M. and Rego, S. 2004. Market reaction to events surrounding the Sarbanes–Oxley Act of 2002 and earnings management. Working paper, University of Iowa.Google Scholar
  75. Linck, J., Netter, J. and Yang, T. 2006. Effects and unintended consequences of the Sarbanes–Oxley Act on corporate boards. Working paper, University of Georgia.Google Scholar
  76. Litvak, K. 2007. The effect of the Sarbanes–Oxley Act on non-US companies cross-listed in the US. Journal of Corporate Finance. 13: 195–228.CrossRefGoogle Scholar
  77. Macey, J., and G. Miller. 1991. The plaintiffs’ attorney’s role in class action and derivative litigation: Economic analysis and recommendations for reform. Chicago Law Review 58: 1–94.CrossRefGoogle Scholar
  78. Mahoney, P. 1992. Precaution costs and the law of fraud in impersonal markets. Virginia Law Review 78: 623–660.CrossRefGoogle Scholar
  79. Mahoney, P.G. 1997. The exchange as regulator. Virginia Law Review 83: 1453–1500.CrossRefGoogle Scholar
  80. Manne, H. 1965. Mergers and the market for corporate control. Journal of Political Economy 73: 110–120.CrossRefGoogle Scholar
  81. Manne, H. 1966. Insider trading and the stock market. New York: Free Press.Google Scholar
  82. Milgrom, P. 1981. Good news and bad news: Representation theorems and application. Bell Journal of Economics 12: 380–391.CrossRefGoogle Scholar
  83. Perino, M. 2006. Institutional activism through litigation: An empirical analysis of public pension fund participation in securities class actions. Legal Studies Research Paper No. 06–0055, St. John’s University.Google Scholar
  84. Pritchard, A.C., and H. Sale. 2005. What counts as fraud? An empirical study of motions to dismiss under the Private Securities Litigation Reform Act. Journal of Empirical Legal Studies 2: 125–149.CrossRefGoogle Scholar
  85. Rajan, R.G., and L. Zingales. 1998. Financial dependence and growth. American Economic Review 88: 559–586.Google Scholar
  86. Rock, E. 1991. The logic and (uncertain) significance of institutional shareholder activism. Georgetown Law Review 79: 445–506.Google Scholar
  87. Roe, M. 1994. Strong managers, weak owners. Princeton: Princeton University Press.Google Scholar
  88. Romano, R. 1985. Law as a product: Some pieces of the incorporation puzzle. Journal of Law Economics and Organization 1: 225–283.Google Scholar
  89. Romano, R. 1987. The political economy of takeover statutes. Virginia Law Review 73: 111–198.CrossRefGoogle Scholar
  90. Romano, R. 1991. The shareholder suit: Litigation without foundation? Journal of Law Economics and Organization 7: 55–87.Google Scholar
  91. Romano, R. 1992. A guide to takeovers: Theory, evidence and regulation. Yale Journal on Regulation 9: 119–180.Google Scholar
  92. Romano, R. 1993. Public pension fund activism in corporate governance reconsidered. Columbia Law Review 93: 795–852.CrossRefGoogle Scholar
  93. Romano, R. 1998. Empowering investors: A market approach to securities regulation. Yale Law Journal 107: 2359–2430.CrossRefGoogle Scholar
  94. Romano, R. 2001. Less is more: Making institutional investor activism a valuable mechanism of corporate governance. Yale Journal on Regulation 18: 174–252.Google Scholar
  95. Romano, R. 2005. The Sarbanes–Oxley Act and the making of quack corporate Governance. Yale Law Journal 114: 1521–1611.Google Scholar
  96. Ross, S.A. 1979. Disclosure regulation in financial markets: Implications of modern finance theory and signaling theory. In Issues in financial regulation: Regulation of American Business and Industry, ed. F.R. Edwards. New York: McGraw Hill.Google Scholar
  97. Sale, H. 1998. Heightened pleading and discovery stays: An analysis of the effect of the PSLRA’s Internal-Information Standard on ’33 and ’34 Act claims. Washington University Law Quarterly 76: 537–595.Google Scholar
  98. Scharfstein, D.S., and J. Stein. 1990. Herd behavior and investment. American Economic Review 80: 465–489.Google Scholar
  99. Schwert, G.W. 1995. Comment: Poison or placebo: Evidence on the deterrence and wealth effects of modern antitakeover measures. Journal of Financial Economics 39: 3–43.CrossRefGoogle Scholar
  100. Simon, C. 1989. The effect of the 1933 Securities Act on investor information and the performance of new issues. American Economic Review 79: 295–318.Google Scholar
  101. Spiess, D.K., and P. Tkac. 1997. The Private Securities Litigation Reform Act of 1955: The stock market casts its vote. Managerial and Decision Economics 18: 545–561.CrossRefGoogle Scholar
  102. Stigler, G. 1964. Public regulation of the securities markets. Journal of Business 2: 117–142.CrossRefGoogle Scholar
  103. Subramanian, G. 2004. The disappearing Delaware effect. Journal of Law Economics and Organization 20: 32–59.CrossRefGoogle Scholar
  104. Thomas, R., and J. Cox. 2006. Does the plaintiff matter? An empirical analysis of lead plaintiffs in securities class actions. Columbia Law Review 100: 101–155.Google Scholar
  105. Thompson, R. 1991. Piercing the corporate veil: An empirical study. Cornell Law Review 76: 1036–1074.Google Scholar
  106. Thompson, R., and H. Sale. 2003. Securities fraud as corporate governance: Reflections upon federalism. Vanderbilt Law Review 56: 859–915.Google Scholar
  107. Thompson, R., and R. Thomas. 2004. The public and private faces of derivative lawsuits. Vanderbilt Law Review 58: 1747–1823.Google Scholar
  108. Winter, R. 1977. State law, shareholder protection and the theory of the corporation. Journal of Legal Studies 6: 251–292.CrossRefGoogle Scholar
  109. Zhang, I. 2005. Economic consequences of the Sarbanes–Oxley Act of 2002. Related Publication 05–07. AEI–Brookings Joint Center for Regulatory Studies.Google Scholar
  110. Zwiebel, J. 1995. Corporate conservatism, herd behavior and relative compensation. Journal of Political Economy 103: 1–25.CrossRefGoogle Scholar

Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Robert Daines
    • 1
  • Michael Klausner
    • 1
  1. 1.