25 April 2017
EU State Aid Decision SA.38373 - Ireland alleged aid to Apple
Dr George R Barker (Visiting Fellow at LSE); Dr Ian Roxan (Associate Professor of Law and Director of the Tax Programme, LSE);Dr Michael Engel (Sullivan & Cromwell LLP)
23 May 2017
Say On pay: Do shareholders care?
Carsten Gerner-Beuerle (Associate Professor of Law, Law Department, LSE); Dr Tom Kirchmaier (Centre for Economic Performance (CEP), LSE)
12 February 2015
Independent directors in Singapore: Puzzling compliance requiring explanation
Dan W. Puchniak (Associate Professor, Faculty of Law, National University of Singapore)
At first blush, the rise of independent directors in Singapore provides a straightforward example of an extraordinarily successful legal transplant from the West to Asia. In 2001, Singapore implemented a UK inspired Code of Corporate Governance (Code), which required the adoption of independent directors on a comply or explain basis. Shortly thereafter, an overwhelming 96 percent of Singapore listed companies reported full compliance. This, combined with Singapore’s world leading economic success, ostensibly confirmed the Anglo-American-cum-global conventional wisdom that independent directors are required for good corporate governance.
This article reveals, however, that Singapore’s supposedly conventional legal transplant was, in fact, unconventional. The original Code defined independence as requiring no independence from controlling shareholders at all—a seemingly illogical aberration from the definition used in most other controlling shareholder jurisdictions. Historical evidence suggests that Singapore’s unconventional approach, however, was the product of strategic regulatory design (not ignorance) and, we argue, was surprisingly effective. It all but guaranteed exceptionally high compliance rates, which sent a critical signal of “good” corporate governance to international markets in the wake of the Asian financial crisis; while, at the same time, allowing Singapore to functionally maintain its efficient (quasi-state and family-owned) controlling shareholder environment.
We suggest that Singapore’s successful use of what we coin “hollow signalling” was possible primarily because it possessed unique functional substitutes for limiting private benefits of control, which would otherwise have been the primary function of “properly defined” independent directors. In addition, Singapore’s effective, albeit unconventional, use of “hollow signalling” and its somewhat surprising recent move away from this seemingly successful approach will be explored in this article.
25 February 2015
Funding dyamics in crowdinvesting
Prof Lars Hornuf (Professor of Law & Economics, University of Trier)
We use hand-collected data from four German crowdinvesting portals to analyze what determines individual investment decisions in crowdinvesting (which is also referred to as equity crowdfunding). In contrast with the crowdfunding campaigns on Kickstarter, where the typical pattern of project support is U-shaped, we find crowdinvesting dynamics to be L-shaped. The evidence shows that backers base their investment decisions on information provided by the crowdinvesting portals as well as the behavior and comments of other investors. Furthermore, crowd investors engage in herding behaviour. These findings offer support for adequate information disclosure requirements that are consistent with ongoing regulatory reforms such as the JOBS Act in the United States, but that behavioral components also affect investment decisions of the crowd.
3 July 2014
An Australian perspective on access to tax justice in taxation disputes: How costs influence dispute resolution choices
Prof Michael Walpole (Professor, School of Taxation and Business Law, University of New South Wales)
This presentation discusses findings from an Australian study of the costs of tax dispute resolution. It focuses on the resolution of individual taxpayers’ applications to the Administrative Appeals Tribunal (AAT) for the review of the Australian Taxation Office (ATO)’s decisions. A simple model was formulated under the assumption of short-term cost minimisation to explain which route the taxpayer is likely to take for resolving a tax dispute: ATO internal review, AAT review without professional assistance or AAT review with professional assistance. The decision rule involves three parameters: the amount of tax in dispute, the costs of tax dispute resolution to the taxpayer and his/her subjective probability of being successful at the AAT. Hypothetical costs are then constructed for two scenarios: with and without professional assistance. In the former case, the professional assistance fee is a main cost component while the opportunity cost of time loss represents the bulk of the costs in the latter. The costs are substantial, especially if professional assistance is engaged. An examination of the data reveals that (i) the proportion of taxpayers in dispute taking the external review route is under 5%, and (ii) the STCT has been playing a declining role over time. These findings support the claim that personal costs represent a considerable barrier to access tax justice. This may pose a challenge to the tax authorities in setting court fees and other assistance to taxpayers at an ‘equilibrium’ level which discourages frivolous disputes but not genuine tax grievances. It is recommended that (i) the STCT’s $5,000 tax threshold should be raised. The presentation will also discuss the next stage of the research which examines the costs involved in larger disputes in an effort to determine how significant scale and resources are in determining the outcome of tax disputes and the development of the tax law via the courts.
25 June 2014
The functional regulation of finance
Prof Steven L. Schwarcz (Stanley A. Star Professor of Law & Business, Duke Law School)
19 February 2014
A network-based taxonomy of the world's legal systems
Prof Mathias Siems (Durham Law School)
Legal scholars, economists and other social scientist often refer to the idea that countries can be classified into a number of “legal families” or “legal origins”. Yet, this research is unsatisfactory as regards the actual classifications of the legal systems of the world. Thus, it is the aim of this paper to develop a new taxonomy of legal systems. This taxonomy is based on a new dataset of 157 countries that is subsequently analysed with tools of network analysis. In particular, this paper suggests that the world’s legal systems can be divided into the four clusters of “the Good Old Common Law”, “the Modern European Legal Culture”, “the Authoritarian Core”, and “the Weak Law in Transition”. This has important implications, not only for our understanding of the legal world, but also for the feasibility of legal transplants and harmonisation.
10 December 2013
Should rating agencies be subject to civil liability?
Professor Matthias Lehmann (University of Halle-Wittenberg)
20 November 2013
Competition and innovation: A legal perspective
Pablo Ibáñez Colomo, speaker (Law Department, LSE); Martin Cave OBE, discussant (Deputy Chairman, Competition Commission)
The relationship between competition (that is, the market structure and the degree of rivalry) and innovation has long been an area of interest for economists. Fewer researchers have attempted to make sense of the legal implications of this complicated puzzle, which has the potential to transform our understanding of intellectual property and competition law. The fact that the relationship between market structures and the degree of innovation is a complex one (and at least considerably more complex than the relationship between prices and market structures) has sometimes been used (in particular in the US) as an argument against the strict enforcement of competition law, in particular in high-technology industries. This work takes a different perspective on the question. Unlike previous research, it does not seek to draw conclusions from economic research in the field, which is not disputed and is taken as a given. The paper seeks instead to make sense of the impact of the introduction of dynamic innovation considerations in competition law analysis on the legal and institutional architecture on which the enforcement of the discipline rests.
9 October 2013
Bribes and firm value
Stefan Zeume (Finance Department, INSEAD)
I exploit the passage of the UK Bribery Act 2010 as an exogenous shock to UK firms’ cost of using bribes to study whether the ability to pay bribes creates firm value. I find that UK firms operating in high corruption regions of the world exhibit negative abnormal returns upon passage of the Act. This effect is stronger for firms that are not subject to US anti-bribery regulation, are not part of corporate social responsibility indices, operate in concentrated industries, and are better governed. Foreign firms subject to the Act because they have a UK subsidiary also exhibit negative abnormal returns. I also identify real implications of the Act: After enforcement, UK firms expand their subsidiary network less strongly into high corruption regions of the world and their sales in these regions grow 6 percentage points more slowly than sales of comparable continental European firms. Thus, the ability to pay bribes creates firm value and unilateral anti-bribery regulation hurts affected firms.
3 July 2013
Economic transplants and the normative challenge. Some preliminary notes on law-making for financial markets
Professor Katja Langenbucher (Goethe-University Frankfurt & Sciences Po; LSE Visiting Professor)
Varying forms of collaboration between law and economics have been shaping the academic discourse for quite some time. More pragmatically, the European law of financial markets and of listed stock corporations has established a remarkably close working relationship with economics in legislative policymaking and to a lesser extent in judicial practice. All of this suggests a similarity in questions asked, in language used and in scientific tools employed. Surprisingly, closer inspection does not corroborate this presumption but reveals fundamental differences between both disciplines. While legal and economic scholars are considering the same phenomena, their epistemic motives are as diverse as the scientific methodologies they employ. Hence, a problem familiar to legal comparativists is arguably even more pressing for legal scholars working in the broader area of finance law: Can we successfully aim at transplanting findings not of a foreign legal culture, but of a different academic discipline into the law?
While “economic transplants” form a necessary part of many areas of law in general and the law of financial markets more specifically, the task of making such transplants work is a more complicated matter than one should hope. The argument proposed here claims that the strong appeal economic reasoning has had for law-making in the area of financial markets forms part of a more general quest for backing up legal reasoning by “scientific” arguments. Recognizing the merits of this approach, its limits are exposed and the requirements of normative judgments in law are highlighted. Taking it from there, some preliminary rules of thumb for successfully integrating economic transplants into a legal environment are introduced.
1 May 2013
The pension system and the rise of shareholder primacy
Martin Gelter (Associate Professor, Fordham Law School)
27 February 2013
A theory of hybrid relationships
Professor Alan Schwartz (Sterling Professor, Yale Law School and Yale School of Management)
This paper explores the possibility for efficient long term contracts among traders with changing and privately known incentives for exchange. We analyze a negotiation process that enables parties to adapt the default rules of exchange to changes in their preferences for trade. The selection of control rights and default options is delegated to the parties themselves, who collectively are best informed as to which investments and exchanges are efficient. The paper demonstrates how contracts with flexible and endogenous default options are tailored to induce efficient investment and optimal exchange. Applications of our findings for contract theory, the design of commercial contracts, and the need for legal support are discussed.
29 November 2012
Trolls at the High Court?
Dr Luke McDonagh (LSE Law Department)
21 November 2012
The international tax regime and the BRICS world: Elements for a theory
Eduardo Baistrocchi (Lecturer, LSE Law Department)
The global economy's centre of gravity is shifting. Emerging and developing countries have been contributing over 50% of the global GDP since the onset of the 21st century, which is unprecedented since the Industrial Revolution. This paper offers the first analysis of the creeping convergence of the BRIC world (ie, Brazil, Russia, India and China) with global legal standards in a key area of International Law: the International Tax Regime (ITR). The ITR is a legal technology fundamentally designed by the League of Nations in the 1920s, when the BRICs played an irrelevant role. This paper proposes a theory which aims to illuminate the core driving forces of the on-going trend towards global convergence in this area of International Law from both the static and dynamic dimensions. It is grounded on the logic of two-sided platforms.
9 May 2012
Secured creditor control in bankruptcy: Costs and conflict
Andrea Polo (Saïd Business School, University of Oxford)
The secured creditor control in the resolution of distress in small businesses can have two effects: it can reduce the ex-post cost of financial distress but, on the other hand, secured creditors and business owners may collude to divert value from junior creditors. This concern has been particularly expressed in the US for state procedures under which a large percentage of small businesses are restructured. In the UK the secured creditors have introduced the highly contested practice of pre-packs which vividly highlights this trade-off. In a pre-pack, an insolvency practitioner, appointed by the secured creditor, can privately sell the company without involving the courts or consulting with junior creditors and in 50% of the cases the company is sold back to the original owner. Contrary to widespread criticism that this procedure leads to collusion, we find no evidence of exploitation of conflict of interests and we find that it preserves the value of the business and maximizes recovery in circumstances in which a public announcement of bankruptcy would destroy value. In small businesses where secured creditors are concentrated the benefits of their control seem to outweigh the costs. This evidence contradicts the view that court supervision, instead of freedom of contracting, is always needed to avoid expropriation. Moreover, the findings of the paper have important implications for debates about auction designs of bankruptcies and for the social implications of using floating charge as a debt resolution mechanism.
7 March 2012
Acquisition and disclosure of information revisited
Professor Urs Schweizer (Professor, Department of Economics, University of Bonn)
Shavell (1994) in a seminal contribution has compared the incentives to acquire information prior to sale under required versus voluntary disclosure. As some of his findings seem intriguing and the topic remains to be of great importance it may be worth having a closer look at the underlying assumptions. In particular, he assigns all bargaining power to the party who acquires information. The present paper introduces a generalization of Shavell’s model. Moreover, instead of concentrating on an explicit bargaining game, the analysis relies on disclosure, incentive and participation constraints only that are shared by all bargaining procedures. The present paper uncovers that some of Shavell’s findings rest indeed on the extreme assignment of bargaining power as well as on confining the analysis to trade decisions where trade always occurs, no matter which move of nature prevails.