On December 3, 2019, Japan’s Government Pension Fund (GPIF) announced that it would suspend share lending to short sellers. This is the latest development in a growing global regulatory skepticism of shorting, with Reuters recently reporting that short selling bans are under consideration in South Korea, Germany, France, Italy, and Turkey. Prominent short activists have characterized these regulatory efforts as a “war on truth,” calling themselves modern-day Davids fighting corporate Goliaths, powerful companies who commandeer protectionist instincts to shield local industry from legitimate criticism.
To be sure, a large academic literature has found that short selling improves price … Read more
Financial reports can be opaque, complex, and difficult to understand. As far back as 1998, this was the premise behind the SEC’s Plain English Rule: an unsuccessful attempt to encourage firms to write more readable financial reports. In a new paper, we show that the turgid nature of financial reports could be an unintentional response to litigation risk. Indeed, firms’ concerns about satisfying disclosure requirements lead to more voluminous, and more complex, disclosures. We ensure that our results are well identified and take steps to mitigate endogeneity concerns.
What we investigate
We start with the observation that decreasing readability … Read more
On November 26, 2019, New York Stock Exchange LLC (“NYSE”) filed notice of a proposed rule change with the Securities and Exchange Commission to modify its listing rules relating to direct listings. The proposed rule change would allow companies to raise capital and sell new shares in a direct listing, in contrast to the current rules, which only permit secondary sales by existing shareholders. In addition, the proposed rule would modify the distribution requirements for direct listings, thereby expanding the number of private companies that would be eligible for direct listings. If adopted, the proposed rules would significantly increase the … Read more
In a new article, I use network theory to show that there is a hidden link between insider trading and macroeconomic risk. I suggest that current laws on insider trading increase the level of macroeconomic risk for the economy, and I show that this problem can be addressed by banning what I call network trades: trades based on private material information in firms that are connected to the firm of the insider (e.g. suppliers and competitors).
We live in an interconnected economy where private material information about one firm is also a relevant predictor of the performance of connected firms … Read more
The growing compensation gap between CEOs and rank-and-file employees has generated considerable debate about potential adverse consequences at both the firm and societal levels. Despite interest in the topic, assessing vertical pay disparity has been difficult due to the lack of public disclosure about employee compensation.
While companies have long reported top-executive pay, transparency on employee compensation was recently enhanced when the SEC adopted the CEO Pay Ratio Rule requiring most reporting companies to provide new disclosures of the median employee’s pay and a ratio comparing the CEO’s compensation with this value. For example, if the CEO and median … Read more
On November 4, the Securities and Exchange Commission (the “SEC”) proposed amendments (the “Proposal”) to modernize Rule 206(4)-1 (the “Advertising Rule”) under the Investment Advisers Act of 1940 (the “Advisers Act”).  The first substantial amendment to the Advertising Rule since its adoption in 1961, the Proposal is intended to reflect “changes in the technology used for communication, the expectations of investors shopping for advisory services, and the nature of the investment advisory industry, including the types of investors seeking and receiving investment advisory services.”
While the Proposal appears to be designed to provide investment advisers, particularly private fund managers, … Read more
Professor John C. Coffee, Jr., of Columbia Law School and Commissioner Robert J. Jackson, Jr., of the U.S. Securities and Exchange Commission discuss proxy solicitation rules, short-selling issues, and other hot topics of debate at the SEC.
This podcast was produced by John Metaxas, Columbia Law ’84, WallStreetNorth Communications, Inc.… Read more
On November 5, 2019, at an open meeting the SEC voted (3 to 2) to propose amendments to the proxy rules. The proposed amendments relate to regulating proxy advisory firms. The Commission also voted to propose amendments with regard to shareholder proposals, including eligibility standards for submission and resubmission. Chairman Jay Clayton observed that the proposals were “rooted in two essential aspects of effective regulation: modernization and retrospective review.”
The SEC is soliciting public comment, through numerous questions in both proposals covering a range of topics and alternatives, for 60 days after their publication in the Federal Register.
… Read more
Shareholder proposals urging corporate boards to report on climate‑related risk made headlines in 2017 when they earned majority support from investors at ExxonMobil, Occidental Petroleum, and PPL. The key to this historic vote was the support of the Big Three index fund managers – BlackRock, State Street, and Vanguard, which broke with management and cast their votes for the proposals. The 2018 proxy season saw several more climate‑related proposals earn majority support, and in 2018 and 2019 record numbers of proposals were withdrawn after the companies agreed to respond to shareholders’ requests.
The highly visible 2017 proposal, … Read more
Most everyone has had their say about the collapse of WeWork’s failed initial public offering (“IPO”). Clearly, this failure was overdetermined, as many competing causes can explain it, including: (1) the extraordinary level of self-dealing that its CEO, Adam Neumann, regularly engaged in; (2) the corporate governance structure that locked up all voting power and control in him; (3) a system of non-GAAP metrics that more than raised eyebrows; (4) an extraordinarily high valuation for a company that, despite its claims of being a high-tech start-up, was closer to a simple real estate firm; and (5) the unstable personality … Read more