The Economics of Limited Liability: An Empirical Study of New York Law Firms

Since the rapid rise in organizational forms for business associations, academics and practitioners have sought to explain the choice of form rationale. Each form contains its own set of default rules that inevitably get factored into this decision, including the extent to which each individual firm owner will be held personally liable for the collective debts and obligations of the firm. The significance of the differences in these default rules continues to be debated. Many commentators have advanced theories, most notably those based on unlimited liability, profit-sharing, and illiquidity, asserting that the partnership form provides efficiency benefits that outweigh any costs. In this article, the authors test these theories empirically by examining the choice of organizational form by New York law firms. Although the evidence indicates a strong shift from the general partnership form to the limited liability partnership form, a significant number of New York law firms remain general partnerships. The authors conclude that the prevailing theories based on unlimited liability, profit-sharing, and illiquidity are insufficient and posit that, in contrast to the beliefs of many commentators, the choice of form decision is quite complex. It depends on a variety of factors, including the behavior of other similarly situated firms that the decision makers consider competitors for prestige and clients. Nonetheless, it is apparent that unlimited liability is generally considered burdensome, and it is the authors’ prediction that, at some point in time, nearly all the firms in their sample will choose to file as limited liability partnerships. The general partnership form, with its unlimited liability, will operate only as a penalty default that punishes parties who fail to sufficiently define their organization, forcing firm members to reveal relevant information to courts and interested third parties

Understanding Strategic Bidding in Restructured Electricity Markets: A Case Study of ERCOT

We examine the bidding behavior of firms competing on ERCOT, the hourly electricity balancing market in Texas. We characterize an equilibrium model of bidding into this uniform-price divisible-good auction market. Using detailed firm-level data on bids and marginal costs of generation, we find that firms with large stakes in the market performed close to theoretical benchmarks of static, profit-maximizing bidding derived from our model. However, several smaller firms utilized excessively steep bid schedules that deviated significantly from our theoretical benchmarks, in a manner that could not be empirically accounted for by the presence of technological adjustment costs, transmission constraints, or collusive behavior. Our results suggest that payoff scale matters in firms' willingness and ability to participate in complex, strategic market environments. Finally, although smaller firms moved closer to theoretical bidding benchmarks over time, their bidding patterns contributed to productive inefficiency in this newly restructured market, along with efficiency losses due to the close-to optimal exercise of market power by larger firms.

Why Brilliant People Believe Nonsense: A Practical Text for Critical and Creative Thinking

The information explosion has made us information rich, but wisdom poor. Yet, to succeed in business and in life, we must distinguish accurate from bogus sources, and draw valid conclusions from mounds of data. This book, written for a general adult audience as well as students, takes a new look at critical thinking in the information age, helping readers to not only see through nonsense, but to create a better future with innovative thinking. Readers should see the practicality of enhancing skills that make them more innovative and employable, especially in a day when companies increasingly seek original thinkers, global visionaries, and thought leaders. Targeting high school seniors and college freshmen, but useful to all adult readers, the authors examine surprising and costly mental errors made by respected business leaders, entertainment moguls, musicians, civic leaders, generals and academics. Then, the authors draw practical applications to help readers avoid such mistakes and think more creatively in each field. Although written in an engaging and popular style, over 600 end notes provide authority to this content-rich document. Thus writers, researchers, teachers, and job seekers should find it a useful starting point for research into this important field. Home school teachers and public school educators will find an accompanying free website with lesson plans and teaching tips. It\u27s also a low-cost alternative to expensive texts. (The hard copy is priced reasonably and a pdf of the entire book will be offered free to students on their digital platforms.) Each chapter ends with thought questions and tips for further research.https://digitalcommons.kennesaw.edu/facbooks2015/1011/thumbnail.jp

Res Ipsa Loquitur

https://scholarship.shu.edu/law_newspapers/1193/thumbnail.jp

And Now a Crisis in Legal Education

The current crisis in legal education coincides with a crisis in the practice of law. Law practice has changed as a result of technology, globalization, and economic pressures. The market for legal education\u27s product, law graduates, have diminished. Law schools cannot remain the same in this environment. Except for a very small number of elite schools, those that do not adjust are at serious risk of failing. An economic change has taken place against a system in which mostly corporate clients willingly paid for the training of beginners at major law firms. Law firms could absorb those costs if partners allowed their incomes to shrink, but so far they are not doing so. Billing for newly minted associates\u27 time is substantially decreasing. Far fewer law graduate find jobs in major firms, and the few who do are not given comprehensive training. Everyone from law firms and their clients to prospective law students and even to the New York Times has turned to the law schools to say, It\u27s your turn; you have to do this for us. The cost once borne by corporate clients of law firm is now increasingly borne by law schools. The call for law schools to produce practice-ready lawyer arrives as the cost of legal education is already too high and application numbers are too low for the current supply of legal education seats. Legal education can only hope to maintain relevance if it can forge partnership with the profession\u27s practicing branch. Another suggested antidote is the two-year J.D., or two-year legal education bar eligibility

And Now a Crisis in Legal Education

The current crisis in legal education coincides with a crisis in the practice of law. Law practice has changed as a result of technology, globalization, and economic pressures. The market for legal education\u27s product, law graduates, have diminished. Law schools cannot remain the same in this environment. Except for a very small number of elite schools, those that do not adjust are at serious risk of failing. An economic change has taken place against a system in which mostly corporate clients willingly paid for the training of beginners at major law firms. Law firms could absorb those costs if partners allowed their incomes to shrink, but so far they are not doing so. Billing for newly minted associates\u27 time is substantially decreasing. Far fewer law graduate find jobs in major firms, and the few who do are not given comprehensive training. Everyone from law firms and their clients to prospective law students and even to the New York Times has turned to the law schools to say, It\u27s your turn; you have to do this for us. The cost once borne by corporate clients of law firm is now increasingly borne by law schools. The call for law schools to produce practice-ready lawyer arrives as the cost of legal education is already too high and application numbers are too low for the current supply of legal education seats. Legal education can only hope to maintain relevance if it can forge partnership with the profession\u27s practicing branch. Another suggested antidote is the two-year J.D., or two-year legal education bar eligibility

The Importance of the Prefiling Phase for Securities-Fraud Litigation

The pleading burden that governs securities-fraud litigation is significantly higher than those standards that govern traditional civil cases. The heightened pleading burden applicable to securities cases has transformed the motion to dismiss into something like summary judgment. In fact, to contend with this heightened pleading burden, plaintiffs typically must spend more time in the prefiling phase gathering sufficient, reliable evidence of securities fraud. With almost two decades of litigation under the securities laws’ heightened pleading burden, empirical studies are revealing that certain kinds of evidence are more likely to defeat a motion to dismiss than others. But dismissal statistics and cases are telling in another respect as well. They reveal that some forms of corroboration (SEC proceedings, accounting restatements, bankruptcies) seem more likely to help stave off dismissal than others (insider trading, inferences from shared experience, and accounts from confidential witnesses). This issue—the effective strategies for investigating and pleading securities-fraud claims—is the subject of this year’s conference sponsored by Loyola University Chicago School of Law’s Institute for Investor Protection

The social perception of accountants: insights from Portuguese past and present

Tese de Doutoramento em ContabilidadeThis thesis examines the social perception of accountants by using the Portuguese case, before and after accounting being socially recognized as a profession. To identify the perceptual dimensions of the social image of accountants, the factors contributing to the construction of this image, and the implications for accountants and accounting that follow from the content and structure of such an image are the general goals of this investigation. Two different sources of data provide empirical support for this research: two literary works belonging to the stream of the Realism, set and first published in the second half of the 19th century; and a questionnaire administered to a community sample and designed essentially through the developments of psychology – the Big Five model of personality and the Stereotype Content Model. The perceptual dimensions of the social image of early accountants are analysed through a qualitative content analysis and those of modern accountants are examined through descriptive statistics of the latent variables of the Big Five model of personality and also of those of the Stereotype Content Model, both subject to confirmatory factor analysis. The factors contributing to the construction of the social image of accountants are investigated through a literature review and a causal model, which tests the influence of some factors identified in literature on the stereotype of accountants. The discussion and the interpretation of the results are supported by contextual aspects and literature from the field of accounting, psychology and sociology. The study identifies dimensions in the social image of early and modern accountants and highlights the closeness of their stereotypes. The overall characterization of this social image seems to match with the image of ‘a committed servant’. Its portrayal might be seen as highlighting an engagement in serving others, neglecting their own interests in favour of others’ objectives, but also without power to open the doors to high social positions. The findings emphasize a perceived subordinate role of modern accountants in society, which this study suggests to be a historical legacy of the accounting profession. Perceived warmth is revealed as the most influential variable on the stereotype of accountants, followed by competence, a fact that underlines the power of these variables on the impression formation about accountants, with the social activities being highlighted in this regard.Esta tese estuda a perceção social dos contabilistas, utilizando a realidade portuguesa, anterior e posterior ao reconhecimento da profissão. Os objetivos desta investigação prendem-se com a identificação das dimensões percetuais da imagem social dos contabilistas, bem como dos fatores que contribuem para a construção desta imagem e, ainda, das implicações que decorrem do conteúdo e da estrutura da mesma para os contabilistas e para a contabilidade. Empiricamente são utilizados dados históricos e atuais. As fontes históricas são duas obras literárias que pertencem à corrente do Realismo e cuja primeira publicação ocorreu na segunda metade do século XIX. Os dados para a perspetiva atual, decorrem de um questionário administrado a uma amostra da população portuguesa, o qual se encontra sobretudo baseado no modelo dos cinco grandes fatores da personalidade e no modelo do conteúdo dos estereótipos. As dimensões percetuais da imagem social dos predecessores dos atuais contabilistas são analisadas através de uma análise de conteúdo qualitativa. As dos contabilistas modernos, profissionalmente qualificados, decorrem de estatística descritiva das variáveis latentes do modelo dos cinco grandes fatores da personalidade e do modelo do conteúdo dos estereótipos, para os quais foi realizada análise fatorial confirmatória. Os fatores que contribuem para a construção da imagem social dos contabilistas são investigados através duma revisão de literatura e de um modelo causal, o qual testa a influência sobre o estereótipo dos contabilistas de alguns dos fatores identificados na literatura. A discussão e interpretação dos resultados baseia-se em aspetos contextuais e em literatura das áreas da contabilidade, psicologia e sociologia. Neste estudo são identificadas dimensões associadas à imagem social dos contabilistas antigos e modernos, sendo realçada a proximidade dos dois estereótipos. A caracterização geral desta imagem social parece corresponder à de ‘um servo dedicado e leal’, em cujo retrato pode ser realçado o empenhamento em servir os outros, negligenciando o seu próprio interesse, caracterização que, todavia, não permite abrir as portas de posições sociais mais elevadas aos contabilistas. Os resultados enfatizam a perceção de um papel de subordinação na sociedade, associado aos contabilistas modernos, o qual este estudo sugere ser um legado histórico da profissão. A sociabilidade é revelada como sendo a variável com maior influência sobre o estereótipo dos contabilistas, à qual se segue a competência, um facto que realça o poder destas variáveis ao nível da formação de impressões sobre os contabilistas, destacando-se, neste âmbito, as atividades sociais

Essays On Corporate Governance

University of Minnesota Ph.D. dissertation. November 2017. Major: Applied Economics. Advisors: Glenn Pederson, Andrew Winton. 1 computer file (PDF); vii, 122 pages.In the first essay, I examine how the threat of activist intervention affects firm innovation. I argue that when firm managers pursue innovation, firm stock price may reflect less precise information about the firm's fundamental value, which makes firm managers vulnerable to shareholder intervention. Under the threat of shareholder intervention, managers will be biased against innovation projects to minimize their job termination risk. Consistent with this mechanism, I find that: (1) increasing the threat of shareholder intervention has a significant and economically important negative impact on firm innovation; (2) the threat of shareholder intervention exerts less negative effects on firms that are more likely to have efficient stock prices (e.g., firms with more monitoring institutional investors and/or more financial analysts). To establish causality, I use a novel identification strategy that relies on a quasi-natural experiment of activist fund closures to generate exogenous variation in the level of shareholder intervention threat. The difference-in-differences estimates show that firm-level innovation significantly improves following exogenous activist fund closures. The results from this identification strategy suggest a negative causal effect of shareholder intervention threat on firm innovation. In the second essay, I examine the effects of shareholder derivative litigation on board effectiveness. Specifically, I investigate the effects of Delaware's judicially-led reforms in 2003. In response to the Sarbanes-Oxley Act, Delaware courts adjusted their corporate law jurisprudence, moving to a more restrictive application of the business judgment rule and more vigorous enforcement of officer and director fiduciary duties. By lowering the procedural hurdles to derivative litigation (e.g., demand requirement, and special litigation committee), the courts allowed more shareholder derivative lawsuits to survive pretrial motions to dismiss. These reforms have greatly enhanced the ability of shareholders to effectively pursue derivative litigation against corporate directors and officers. Using a sample of 2153 publicly-traded firms from 1999 to 2007 and the difference-in-differences method, I find that following the 2003 reforms, Delaware chartered corporations have exhibited higher CEO pay-for-performance sensitivity and greater CEO turnover-performance sensitivity than have non-Delaware firms. These results show that empowering shareholders to pursue derivative litigation provides high-powered incentives to directors to improve their corporate governance decisions