Law for the Common Man: An Individual-Level Theory of Values, Expanded Rationality, and the Law

This article makes an admittedly bold attempt at outlining an analytical framework for addressing this question. Instead of looking at the legal implications of bounded rationality -- an exercise highly worthy in its own right -- this article advances a theory of expanded rationality. This theory retains the element of rationality in that people respond to incentives in an attempt to attain utility, and it does not question the observation that decision-making is often bounded due to various factors

Games Commissions Play: 2x2 Games of International Securities Regulation

In recent years, the internationalization of securities markets has accelerated in pace and broadened in scope Faced with the growing complexity of modern stock markets, national securities regulators have recognized the need for greater cooperation, and a variety of efforts to achieve international cooperation in securities regulation is currently under way. The reality of today\u27s stock markets, however, is one of fierce international competition, and securities regulators thus face two problems in the international context. The first is the fundamental incentive not to cooperate with their colleagues to the extent that such cooperation might undermine their country\u27s competitive position in the international markets. The second problem is that adhering to the competitive dynamics may, in fact, operate to the detriment of their country\u27s interests. This situation is often characterized in the form of a Prisoners\u27 Dilemma. This Article suggests a new, broader perspective for looking at international securities regulation. It argues that in analyzing international securities regulation, the Prisoners\u27 Dilemma is a useful paradigm in only a few of the problems that arise in practice. In many others, other 2x2 game models better depict the conflictual situation that countries face and help to assess the prospects of international cooperation. The Article offers a unique integration of insights coming from three different sources: theories of corporate governance and securities regulation, standard game theory modeling, and international relations and regime theory analysis. The Article examines three fundamental subjects of securities regulation-disclosure, anti-fraud, and insider trading-and transforms states\u27 policies into ordinal preference orders in 2x2 games. The emphasis throughout is on regulatory cooperation-on the problems securities regulators face in reaching sustainable agreement and on the international regimes that may facilitate cooperation

Cross-Listing and Corporate Governance: Bonding or Avoiding?

This article questions the bonding role of cross-listing. Based on a comprehensive survey of the literature, I argue that this role has been greatly overstated. A large body of evidence, using various research methodologies, indicates that the bonding theory is unfounded. Indeed, the evidence supports an alternative theory, which may be called the avoiding hypothesis. To the extent that corporate governance issues play a role in the cross-listing decision, it is a negative role. The dominant factors in the choice of cross-listing destination markets are access to cheaper finance and enhancing the issuer\u27s visibility. Corporate governance is a second-order consideration whose effect is either to deter issuers from accessing better-regulated markets or to induce securities regulators to allow foreign issuers to avoid some of the more exacting domestic regulations. Overall, the global picture of cross-listing patterns is best described by a model of informational distance, which comprises elements of geographical and cultural distance. A key weakness in some bonding-by-cross-listing theses-common among finance scholars-is that they are insensitive to crucial features of the US securities regulation regime. As it happens, the regulatory regime that is out for rent by foreign issuers differs markedly from the regime that applies to domestic American issuers. The shortcomings of the domestic American regime that recently came to light notwithstanding, the regime that governs foreign issuers is inferior to the former regime in significant respects. Generally speaking, the foreign issuer regime cuts corners exactly on the issues of corporate governance relating to corporate insiders. The Securities and Exchange Commission ( SEC ) has cut these corners on purpose. Evidence further suggests that the SEC complements this strategy with a hands-off\u27 informal policy of nonenforcement toward foreign issuers. The evidence surveyed in this article indicates that cross-listings in the US fail to reflect positive effects that could be attributed to corporate governance improvements

My Creditor’s Keeper: Escalation of Commitment and Custodial Fiduciary Duties in the Vicinity of Insolvency

Fiduciary duties in the vicinity of insolvency form a notoriously murky area where legal space warps. Courts openly acknowledge that it is difficult to identify its boundaries, and the content of these duties is equally uncertain and inconsistent across jurisdictions. This Article expands the theoretical basis for a special legal regime in virtually or liminally insolvent firms. In addition to the conventional rationale of opportunistic risk shifting, lawmakers should be mindful of managers’ tendency to unjustifiably continue failing projects, known as escalation of commitment. Second, this Article addresses the substantive content of a duty to protect creditors, either as in the form of a duty to consider creditors’ interest or as the statutory rule against wrongful (or insolvent, or reckless) trading. Specifically, it argues that when these duties are enlivened at the very edge of the zone of insolvency, the mission of directors should transform from entrepreneurial to custodial and should include a trustee-like duty of caution

Culture Rules: The Foundations of the Rule of Law and Other Norms of Governance

This study presents evidence about relations between national culture and social institutions. We operationalize culture with data on cultural dimensions for over 50 nations adopted from cross-cultural psychology and generate testable hypotheses about three basic social norms of governance: the rule of law, corruption, and accountability. These norms correlate systematically and strongly with national scores on cultural dimensions and also differ across cultural regions of the world. Regressions indicate that quantitative measures of national culture are alone remarkably predictive of governance, that economic inequality and British heritage add to predictive power, but that economic development and other factors add little. The results suggest a framework for understanding the relations between fundamental institutions of social order as well as policy implications for reform programs in transition economies.http://deepblue.lib.umich.edu/bitstream/2027.42/39991/3/wp605.pd

Culture Rules: The Foundations of the Rule of Law and Other Norms of Governance

This study presents evidence about relations between national culture and social institutions. We operationalize culture with data on cultural dimensions for over 50 nations adopted from cross-cultural psychology and generate testable hypotheses about three basic social norms of governance: the rule of law, corruption, and accountability. These norms correlate systematically and strongly with national scores on cultural dimensions and also differ across cultural regions of the world. Regressions indicate that quantitative measures of national culture are alone remarkably predictive of governance, that economic inequality and British heritage add to predictive power, but that economic development and other factors add little. The results suggest a framework for understanding the relations between fundamental institutions of social order as well as policy implications for reform programs in transition economies.Rule of Law, Corruption, Accountability, Culture, Governance, Economic Inequality, Economic Development

BITs and Pieces of Property

Property sets out the ways in which society allocates, governs, and enforces rights and duties among persons with respect to resources. The boundaries of property are constantly changing. They influence and are influenced by social, economic, and political shifts. Nowadays, in view of ever intensifying foreign investments and other cross-border ventures, the institution of property may face its greatest challenge ever: the transition from a largely domestic legal construct into one that accommodates globalization

The Maximands of Corporate Governance: A Theory of Values and Cognitive Style

This paper considers the raison d’être of corporations as it is reflected in the maximands of corporate governance. The debate over stockholders’ versus stakeholders’ interests as such maximands has been raging for decades. Advances in economic theory have not only failed to resolve this debate but have established that the problem is graver than what many may have estimated. This paper turns this debate on its head: Instead of asking What or Whose interests should corporations maximize, the real question is Why is this debate taking place at all? Aiming to extend current economic analyses of the maximands issue, this paper puts forward a new theory about the factors that determine these maximands. Recent advances in psychological research point to value emphases at the individual and societal levels and to the need for cognitive closure as such factors. The theory proposes the notion of value complexity as an organizing element that may associate certain value emphases with cognitive style. Overall, this theory provides explanations for various sticky points in the stockholder-stakeholder debate in the United States and in international settings, identifies gaps in other theoretical accounts, and generates testable hypotheses for empirical research. Extant evidence supports this theory