The law of directors' fiduciary duties in U.S. corporations: an economic or ideological paradigm?

The original conceptualization. Contractarians and communitarians. Economic or ideological paradigms? The creditor variant. Policy considerations and concluding remarks

Activist Hedge Funds and the Corporation

The long-term effects of hedge fund activism are controversial. Some empirical studies document that activism is associated with increased long-term firm value, suggesting that activists can better discipline management. Other studies, however, challenge these results, arguing that the incorporation of possible selection effects exposes activism as detrimental to long-term firm value. This Article contributes to this ongoing debate, producing novel empirical evidence on the relationship between activist campaigns, the financial value of firms, key governance arrangements, and corporate legal rules. We first document qualitative evidence that untargeted “control” firms sharing similar characteristics to targeted firms perform better in the long term than the target firms, and then show that hedge fund activism is associated with increased risk-taking but has no significant impact on managerial incentives. These combined findings provide support for the view that the substantial private gains hedge funds realize through activism come at the expense of long-term firm value, rather than from increased managerial accountability. Consistent with these results, we further show that defensive mechanisms matter for deterring hedge fund activism only as long as they provide an effective higher-level constraint to protect a firm’s commitment to long-term value creation, such as when they are premised on shareholder consent or embedded in a managerial-friendly legal environment. This would explain why staggered boards and incorporation in states with more anti-takeover statutes can deter future activist interventions, while the poison pill, surprisingly, does not. The Article concludes with recommendations to enhance the deterrent effect of current defensive mechanisms against short-term hedge fund activism

Commitment and Entrenchment in Corporate Governance

Over the past twenty years, a growing number of empirical studies have provided evidence that governance arrangements protecting incumbents from removal promote managerial entrenchment, reducing firm value. As a result of these studies, “good” corporate governance is widely understood today as being about stronger shareholder rights. This Article rebuts this view, presenting new empirical evidence that challenges the results of prior studies and developing a novel theoretical account of what really matters in corporate governance. Employing a unique dataset that spans from 1978 to 2008, we document that protective arrangements that require shareholder approval—such as staggered boards and supermajority requirements to modify the charter—are associated with increased firm value. Conversely, protective arrangements that do not require shareholder approval—such as poison pills and golden parachutes—are associated with decreased firm value. This evidence suggests that limiting shareholder rights serves a constructive governance function as long as the limits are the result of mutual agreement between the board and shareholders. This function commits shareholders to preserve a board’s authority to exploit competitive private information and pursue long-term wealth maximization strategies. By documenting that committing shareholders to the longer term matters as much as, if not more than, reducing entrenchment for good corporate governance, our analysis sheds much needed light on the allocation of power between boards and shareholders, managerial accountability, and stakeholder interests. We conclude by outlining the implications of our analysis concerning the direction corporate governance policies ought to take

Urban Decay, Austerity, and the Rule of Law

Detroit has failed and its infrastructure is crumbling. But Detroit is not an isolated case. It is a paradigmatic example of increasing urban decay across the United States. While commentators have warned that the declining state of the country¿s infrastructure threatens U.S. prosperity, there is a bigger issue at stake. Decaying urban environments jeopardize the rule of law, undermining the very foundation of the social contract. This Article shows that the strength of the rule of law in a given country can be predicted by that government¿s ability (or inability) to provide public services¿particularly, a livable urban environment. When urban decay sets in, individuals are led to believe that the government and thus citizens as a collective have abandoned their commitments to following the basic rules governing the social contract. This, in turn, reduces incentives of individuals to engage in lawful behavior. As a result, the rule of law is, like the city itself, left in shambles. In support of this theoretical account, we provide empirical evidence that urban decay weakens the rule of law

Urban Decay, Austerity, and the Rule of Law

Detroit has failed and its infrastructure is crumbling. But Detroit is not an isolated case. It is a paradigmatic example of increasing urban decay across the United States. While commentators have warned that the declining state of the country¿s infrastructure threatens U.S. prosperity, there is a bigger issue at stake. Decaying urban environments jeopardize the rule of law, undermining the very foundation of the social contract. This Article shows that the strength of the rule of law in a given country can be predicted by that government¿s ability (or inability) to provide public services¿particularly, a livable urban environment. When urban decay sets in, individuals are led to believe that the government and thus citizens as a collective have abandoned their commitments to following the basic rules governing the social contract. This, in turn, reduces incentives of individuals to engage in lawful behavior. As a result, the rule of law is, like the city itself, left in shambles. In support of this theoretical account, we provide empirical evidence that urban decay weakens the rule of law

Urban Decay, Austerity, and the Rule of Law

Detroit has failed and its infrastructure is crumbling. But Detroit is not an isolated case. It is a paradigmatic example of increasing urban decay across the United States. While commentators have warned that the declining state of the country¿s infrastructure threatens U.S. prosperity, there is a bigger issue at stake. Decaying urban environments jeopardize the rule of law, undermining the very foundation of the social contract. This Article shows that the strength of the rule of law in a given country can be predicted by that government¿s ability (or inability) to provide public services¿particularly, a livable urban environment. When urban decay sets in, individuals are led to believe that the government and thus citizens as a collective have abandoned their commitments to following the basic rules governing the social contract. This, in turn, reduces incentives of individuals to engage in lawful behavior. As a result, the rule of law is, like the city itself, left in shambles. In support of this theoretical account, we provide empirical evidence that urban decay weakens the rule of law