Issuer Liability: Ownership Structure and the Circularity Debate

In many countries, investors can hold publicly traded companies liable for public misstatements. Issuer liability is intuitively appealing because statements are generally made on behalf of the company by its representatives. Moreover, large companies typically have deep pockets, which ensures compensation for investors who incurred losses because they traded during the period when stock prices were distorted by false information.

However, in the United States – the country where securities class actions are most prevalent –, many scholars are highly skeptical about the social value of issuer liability through securities class actions. The critique is usually framed under the rubric … Read more

Comparative Corporate Governance

With the increasing internationalization of law and legal scholarship, comparative corporate governance has seen a burgeoning volume of research from a practical, theoretical, and empirical perspective. Practically speaking, both internationally and within individual countries, most corporate governance research deals with the interaction between board members, officers, and shareholders, primarily in large, publicly traded corporations. Much of the literature is preoccupied with reducing conflicts of interest between shareholders and management and consequently minimizing agency cost, vindicating the narrow finance perspective. Given the predominance of controlling shareholders around the globe, the literature increasingly focuses on conflicts between controlling and minority shareholders. In … Read more

Accounting and Convergence in Corporate Governance

Convergence in corporate governance – the adoption by various countries of similar governance laws and practices – and whether it is even occurring have been a hot topic of debate over the past 20 years, particularly in the legal and the law-and-economics literature. The legal literature, however, has sometimes neglected the important role of accounting and financial disclosure in corporate governance.

Proponents of convergence theories have suggested that certain laws and practices would be an advantage in a competitive and globalizing economy. Firms subject to efficient norms would be better run and more successful in the product market, and they … Read more

Addressing the Auditor Independence Puzzle: Regulatory Models and Proposal for Reform

Auditors play a major role in corporate governance and capital markets. They facilitate firms’ access to financing by creating trust among public investors with efforts to prevent misbehavior and financial fraud by corporate insiders. In order to fulfill these goals, however, in addition to having the adequate knowledge and expertise, auditors should perform their functions in an independent manner. Unfortunately, auditors are subject to conflicts of interest by, for example, providing non-audit services or the mere fact of being hired and paid by the audited company. Therefore, even if auditors act independently, investors have reason to think otherwise. This lack … Read more

“Centros” and Defensive Regulatory Competition in the European Union

Centros, a landmark 1999 decision by the European Court of Justice (now Court of Justice of the European Union or CJEU), has profoundly transformed European company law. Previously, many EU member states used the “real seat theory” to hinder regulatory arbitrage. Under this theory, a company had to incorporate pursuant to the procedures of the jurisdiction where its administrative center was located. For example, for a firm with its headquarters in Germany to acquire full legal status in the eyes of German courts, it had to be formed under German law. The theory was not aimed at protecting … Read more

The Pension System and the Rise of Shareholder Primacy

In my article, The Pension System and the Rise of Shareholder Primacy, which has recently appeared in the Seton Hall Law Review, I explore the influence of the pension system on corporate governance, particularly shareholder primacy and the relationship between corporations and their employees. Today it is widely accepted among business managers, scholars of corporate law and financial economists that the objective of corporate law and corporate governance should be to promote shareholder wealth (as opposed to a wider community of interests, including employees, creditors, suppliers, customers and local communities). Shareholder capitalism is, however, a relatively recent development. Large, … Read more

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Editor's Tweet: Fordham Law's Martin Gelter on The Pension System and the Rise of Shareholder Primacy