Working Papers 111-120
111. Corporate Law from Scratch (Leebron, David W.) Published in Fair Trade and Harmonization, J. Bhagwati, and R. Hudec, MIT Press, 1996
Recently, claims for harmonization of national laws and policies have been closely linked to claims for "fair trade". The scholarly literature has begun to embrace the notion that harmonization is the mechanism by which unfair differences in legal and other regimes are eliminated, and the "level playing field" is restored. The "fair trade" idea is undoubtedly one source of harmonization claims, but it would be misleading to characterize harmonization claims generally in this way. The purpose of this paper is to elaborate a more or less complete set of justifications for harmonization efforts, and to evaluate those claims in the context of the international trading system. The focus is on truly "international" harmonization among independent nations sharing no common political or economic authority. Some of the issues raised by international harmonization are familiar from discussions of federalism or "subsidiarity", but the context of claims for international harmonization, and the process for its realization, are substantially different.
This paper considers harmonization from a theoretical, and somewhat abstract, perspective. It addresses in this context the following questions regarding harmonization claims: What do we mean by "harmonization"? What are the justifications for the claim that the laws of two or more jurisdictions should be the same? Why do laws and regulatory policies differ in the first place, and do the reasons for difference suggest additional costs to the process of harmonization? What other costs might harmonization entail? What kind of harmonization is needed and to what degree must the laws be harmonized? What should the scope of the harmonization effort be in order to realize any goals without unnecessary costs or distortions? Are there alternatives to harmonization that might serve the goals of harmonization without entailing some of its costs? Working Paper No.111.pdf
112. Do Independent Directors Matter? (Bhagat, Sanjai and Bernard S. Black)December 1996 (Updated in working paper # 143)
A common corporate governance strategy followed by institutional investors is to press for boards of directors of public companies to contain primarily independent directors. We conduct the first large sample, long-horizon study of whether adding independent directors to boards of directors affects performance. We find little evidence that adding independent directors affects firm performance, across a wide variety of performance measures. Firms with more independent directors grow more slowly than other firms, but the causation seems to run from slower growth to a higher proportion of independent directors, rather than the other way around. There is modest evidence that adding inside directors is correlated with improved performance, up to about 40% inside directors. We conclude that the current push for greater independence of directors lacks empirical support Working Paper No.112.pdf
113. Corporate Governance and Economic Efficiency: When Do Institutions Matter? (Gilson, Ronald J.Published in Washington University Law Quarterly, Vol. 74, No. 2, pp. 327-345, 1996
Corporate governance attracted attention beyond the realm of lawyers and quite specific legal rules because of the growing perception that a link existed between corporate governance and corporate performance: better governance, the hypothesis goes, yields more efficient production. The potential link between governance and institutions was given saliency by the large institutional differences between the corporate governance systems of the three most successful industrial economies: Germany's universal bank centered system; Japan's main bank/cross holdings centered system; and the United State's stock market centered system. This paper examines the hypothesized link between corporate governance and economic efficiency through two lenses that highlight the role of national institutions: path dependency and industrial organization. The goal is a clearer understanding of the role of corporate governance institutions as vehicles of adaptive efficiency. Working Paper No.113.pdf
114. Implementation of the Uruguay Round Results in the United States (Leebron, David W.) October 30, 1995
This paper, which is part of a larger global project edited by John Jackson and Alan Sykes, describes in some detail the implementation of the Uruguay Round trade agreements in the United States. The emphasis is on the legislative process and legal implementation, and in particular the status of the agreements and dispute settlement rulings in United States law. Background is also provided on the President's negotiating authority and the fast track procedure. Issues of sovereignty and federalism are also briefly discussed. The paper is primarily descriptive, and does not contain an economic analysis of the Uruguay Round agreements or the United States' implementation. Its primary purpose is to provide an overview of the implementation in the United States, and a basis for comparison with other jurisdictions Working Paper No.114.pdf
115. Trade Linkages (Leebron, David W.) October 15, 1995
This paper, which is in the form of a very preliminary draft, addresses the issue of linking international trade law to other issues, such as the environment, workers' rights, and human rights. This draft attempts to establish a basic analytical framework for the international linkage of issues, primarily addressing two questions. The first is the nature of the claim that some issue or regime should be linked to trade policy. The second is the various ways in which issues or regimes can be linked to trade in the mutilateral context. The basic thesis of the paper is that conflict over the substantive issue of linkage has to some extent been misplaced. Rather, we should focus attention instead on the most appropriate means of linkage. (This paper can be profitably read in conjunction with the author's paper, "Lying Down with Procrustes: An Analysis of Harmonization Claims," which is now available in page proofs.) Working Paper No.115.pdf
116. Investing in Insider-Dominated Firms: A Study of Russian Voucher Privatization Funds (Frydman, Roman, Katharina Pistor, and Andrzej Rapaczynski) Corporate Governance in Central Europe and Russia, Roman Frydman, Cheryl W. Gray, and Andrzej Rapaczynski, Eds., World Bank/CEU Press, Vol. 1, Chap. 5, pp. 187-241, 1996
The paper is based on a survey of 148 Russian privatization investment funds (PIFs) representing, in terms of size, 69 percent of the population of all PIFs created in connecting with the voucher privatization of ca. 14,000 state enterprises. The PIFs surveyed hold shares in some 4 to 5 thousand privatized enterprises, thus providing a window into the world of corporate governance of a substantial portion of Russian firms.
The paper argues that PIFs, like most other outside investors, have relatively small impact on the governance of Russian firms due to the firms' domination by corporate insiders, particularly management. Given high returns from sharel\holder activism, the PIFs attempt to influence the firms in their portfolios in a variety of ways (through obtaining board seats and providing them with a range of services), but have extremely poor access to information and are largely unable to prod the firms toward more radical restructuring. In particular, the PIFs are only rarely able to effect managerial changes, although a logistic equation model used shows that firms which do participate in more that one dismissal of top managerial personnel seem to be interested in fundamental restructuring.
The paper also describes tha main features of the emerging capital market and analyzes the determinants of the trading acitivity of the PIFs. Working Paper No.116.pdf
117. The Role of the State and the Market in Establishing Property Rights (Rapaczynski, Andrzej)
This paper argues against the view, widely held among economists, that markets presuppose clearly defined, well enforced property rights and rules of contract. Sophisticated property and contract rights necessary for a modern market economy presuppose the existence of complex institutions that cannot be established independently of the market itself. Moreover, such institutions often develop not because of any actions of the state, but as a spontaneous response to market demand. The paper sketches a theoretical position and illustrated the process of the creation of property rights with the help of an analysis of recent developments in Eastern Europe. Working Paper No.117.pdf
118. Chaos and Evolution in Law and Economics (Roe, Mark J.)Published in Harvard Law Review, Vol. 109, No. 3, pp. 641-668, January 1996
In this essay, I refine the classical evolutionary model from law and economics by modifying it to accommodate three related concepts, one from chaos theory, another of path dependence, and a final one from modern evolutionary theory itself. The goals for the essay is to provide us a richer understanding of what makes legal and business institutions. Working Paper No.118.pdf
119. From Antitrust to Corporation Governance? The Corporation and the Law: 1959-1994 (Roe, Mark J.) Published in The American Corporation Today, Carl Kasen, Ed. Oxford Press, Chap. 4, pp. 102-127, 1996
In this essay, prepared for The Corporation and Modern Society: A Second Look (forthcoming, Carl Kaysen, ed.), I analyzed changes in law's impact on the corporation during the past thirty-five years, what the underlying bases for these changes might have been, and how these changes affected corporate law.
When the first The Corporation and Modern Society symposium was held in 1959, today's issues, such as competitiveness, were hardly apparent, and the issue of collossal corporate power was paramount. Antitrust law in particular was seen to be a means to restrain the large corporation.
Underlying the 1959 urge to tame the large corporation was the widespread existence (or at least perception) of industrial oligopoly. It was oligopoly (or perhaps really the superior efficiency of a few American manufacturing leaders) that gave the large firm slack and induced the widespread perception of its power.
What erased that image of power in the ensuing decades is clear: The reconstruction of Europe and Japan forced the American manufacturing oligopolists to compete in the international arena; an accelerating pace of technological change made old structures obsolete and brought forth new domestic competitors. While many of the old industrial firms were, or became, fit to compete in new international arena and to ride the waves of new technological change, some weren't. Even the fit ones have to sweat to survive and cannot relax as they did four decades ago, making competivieness considerations overshadow those of corporate power.
Globalization changed the 1959 attitudes and shifted the legal focus on the corporation. Antitrust attacks to break up the giants seemed politically sensible when the three oligopolists split the U.S., and sometimes the world, market. They made no sense when the three came to be embedded in a world-wide market of ten firms. Antitrust rules relaxed. The notion of using law to control corporate power faded, and the legal questions began to focus on whether law plays some role in hindering, or enhancing corporate competitiveness. Working Paper No.119.pdf
120. Design, Deliberation and Democracy (Sabel, Charles F.)December 1995
No Abstract Available Working Paper No.120.pdf