• Selected
• Entire List

Abstract:
The rise of private equity funds represents a new stage in capitalism. These funds combine financial resources and capital markets expertise with detailed operational knowledge of the operations of takeover targets to maximize the creation and expropriation of value on behalf of investors. Their significant size and aggressive buyout record suggests that we may be witnessing the confirmation of Michael Jensen's 1989 prediction, made in the midst of the first wave of leveraged buyouts, of the “eclipse of the public corporation.” Critics of private equity share a view of the corporation rooted in a decades old characterization by Berle and Means of the nature of the modern corporation. Rethinking the framework of Berle and Means is an important first step in responding appropriately to the rise of private equity funds.

Abstract:
The rise of private equity funds represents a new stage in capitalism. These funds combine financial resources and capital markets expertise with detailed operational knowledge of the operations of takeover targets to maximize the creation and expropriation of value on behalf of investors. Their significant size and aggressive buyout record suggests that we may be witnessing the confirmation of Michael Jensen's 1989 prediction, made in the midst of the first wave of leveraged buyouts, of the "eclipse of the public corporation." Critics of private equity share a view of the corporation rooted in a decades old misstatement by Berle and Means of the nature of the modern corporation. Rethinking the framework of Berle and Means is an important first step in responding appropriately to the rise of private equity funds.

Berle and Means, Corporate Law, Corporate Finance, Capitalism, Private Equity

Abstract:
This research note provides an initial exploration of the potential securities law implications of the proposed Voluntary Employees Beneficiary Association (VEBA) of General Motors and the UAW.

Abstract:
This spring the New York Stock Exchange, Inc. (NYSE) completed an historic restructuring. On March 7, 2006, the NYSE completed its merger with Archipelago Holdings Inc. (Archipelago), a publicly traded electronic trading platform. As a result, the old NYSE itself will become the New York Stock Exchange LLC, a wholly owned subsidiary of NYSE Group, Inc. (NYSE Group). The former members, or seat holders, of the NYSE will receive one of three forms of consideration: all cash, all stock in NYSE Group, or a package of cash and stock. Then, NYSE Group will allow those former members to offer their shares to the public in a secondary offering.

Because the NYSE was a not-for-profit corporation, the merger was also a change in organizational form. The change from nonprofit to for-profit, or demutualization, has mostly been viewed as a long-overdue response to new, on-line competition from "electronic communications networks" (ECN's). But there has been little assessment of the strengths or efficiencies of the nonprofit form of the exchange. This paper presents the possibility that the NYSE's choice of form was an efficient solution to a classic "lemons" problem, in which misinformation from bad issuing firms (firms whose shares trade on the exchange) could drive out good issuing firms. We apply a robust theory of nonprofits in which the highest demanding consumers of a nonrival good organize the production of that good. In this case, investment bankers and other financial intermediaries organize to produce liquidity. The resulting nonprofit is the former NYSE, which was able to align issuing firms' incentives to disclose with those of investors. Banker-owners of the NYSE acted as gatekeepers to the exchange, screening issuing firms through an extensive "due diligence" process, providing capital via underwriting, and connecting issuing firm insiders to one another via initial public offering (IPO) allocations. Over a period of many decades this system maintained an equilibrium in which issuing firms, big and small investors, and exchange members could participate with relative ease, transparency and fairness in the exchange. The shift to a for-profit corporation will have a significant, and potentially deleterious, impact on this equilibrium as it breaks up the longstanding components of the nonprofit system.

Abstract:
During the decade long rule of the Sandinista movement in 1980s' Nicaragua, discussion of the origins and development of that nation's revolution was greatly hindered by a polarization between two basic points of view. On the one hand, an anticommunist worldview rooted in the Cold War fueled outright opposition to the Sandinista movement. On the other, a defense of the politics of the Sandinistas was motivated by a tendency on the left and within some currents of liberalism to support, almost without criticism, any third world political movement which stood up to the United States government. There were many shades of opinion between these two poles - but no third pole opposed to both. This study is an attempt to break through the intellectual stalemate that is a legacy of the Cold War. By reconsidering the dynamics of the Nicaraguan revolution I believe it is possible to come to a deeper understanding of conflicts in the developing world. In particular, I believe a close study of the relationship between democratic rights and revolutionary movements within the revolutionary process itself is a fruitful means to achieve this understanding.

Nicaragua, labor, human rights, democracy, cold war

Abstract:
This paper examines the impact of authoritarian left theory, in particular that of Che Guevara, on labor rights during the Sandinista's Nicaraguan revolution. This is important because of the current revival of movements like that of Hugo Chavez in Venezuela that rely on similar approaches to labor and human rights issues as that of the original Sandinista movement. In addition, there is widespread interest today in Che Guevara, yet little is known or understood about his actual politics while in power during the early years of the Cuban revolution. In addition, there is increasing sympathy for such authoritarian approaches to labor activism inside the U.S. labor movement.

Abstract:
This article argues that the process of globalization has generated a legitimation deficit that can be the source of wasteful, even destructive, social and political conflict. I stylize this outcome as "the PetroChina Syndrome," after a leading example of the kind of activity generated in response to globalization, the PetroChina Campaign, where a coalition of labor, human rights, environmental, anti-slavery and religious groups worked together to oppose the initial public offering of a major Chinese oil company led by Goldman Sachs. The article begins with a discussion of this important but largely unexplored dimension of the anti-globalization era triggered by the 1999 demonstrations in Seattle against the World Trade Organization. The Campaign and its impact are discussed in detail.

I then examine three possible arguments that shed some light on this development, including traditional securities law approaches, the broader political context and, finally, structural changes in corporate finance. These three arguments, I argue, are helpful but not sufficient. Recent work by the economist Massimo De Angelis on John Maynard Keynes and Milton Friedman helps us shape an alternative explanation rooted in understanding changes in the institutional mechanisms of the global labor and capital markets. The displacement of the trade union and collective bargaining by globalization has pushed organized labor and other groups to look to political intervention in the capital markets as an alternative means to establish legitimacy. This intervention should be encouraged to develop new institutions to respond to the growing legitimation crisis of global capitalism.

Abstract:
This research note examines the recent agreement between Ford and the UAW to restructure the payment flows into the VEBA established to assume health care obligations to Ford retirees.

Abstract:
In a well-functioning stock market, issuing firms publicly disclose all relevant information to investors and prices approximate the true value of those firms. This disclosure generates liquidity as investors large and small engage in trading. While it is tempting to take this “good equilibrium” for granted, the current banking crisis suggests a “bad equilibrium” in which disclosure is suspect so banks stop lending to each other and small investors flee the market.

In this paper, we argue that a good equilibrium was in place when the New York Stock Exchange (NYSE) operated as a non-profit organization. We argue that far from being an outdated and elitist holdover, the mutual form allowed underwriters, who dominated NYSE membership, to extract hostages from managers of firms listed on the NYSE. That is, managers were expected to invest personal funds in shares of other listed firms, including new issuers (“IPOs”).

Since the hostage arrangement was tied to the non-profit form of the NYSE, we predict a decline in information quality after the NYSE became a for-profit firm in March 2006. By comparing the bid-ask spread before and after demutualization, we show that information quality did indeed decline. This finding holds after controlling for market-level variation measured by the bid-ask spread of the NASDAQ National Market. We believe our results can help shed light on the current banking crisis, which originated in areas of the financial system that lack a hostage structure.

Abstract:
This article argues that the process of globalization has generated a legitimation deficit that can be the source of wasteful, even destructive, social and political conflict. I stylize this outcome as "the PetroChina Syndrome," after a leading example of the kind of activity generated in response to globalization, the PetroChina Campaign, where a coalition of labor, human rights, environmental, anti-slavery and religious groups worked together to oppose the initial public offering of a major Chinese oil company led by Goldman Sachs. The article begins with a discussion of this important but largely unexplored dimension of the anti-globalization era triggered by the 1999 demonstrations in Seattle against the World Trade Organization. The Campaign and its impact are discussed in detail.

I then examine three possible arguments that shed some light on this development, including traditional securities law approaches, the broader political context and, finally, structural changes in corporate finance. These three arguments, I argue, are helpful but not sufficient. Recent work by the economist Massimo De Angelis on John Maynard Keynes and Milton Friedman helps us shape an alternative explanation rooted in understanding changes in the institutional mechanisms of the global labor and capital markets. The displacement of the trade union and collective bargaining by globalization has pushed organized labor and other groups to look to political intervention in the capital markets as an alternative means to establish legitimacy. This intervention should be encouraged to develop new institutions to respond to the growing legitimation crisis of global capitalism.

Capital Markets, Securities Regulation, PetroChina, China, Labor, Human Rights, Pension Funds, Legitimacy

Abstract:
The efficient markets hypothesis argues that the price of a financial asset reflects available information about that asset. Competing theories argue that other factors, including investor behavior, can cause asset prices to diverge from the efficient price leading to “bubbles.” We argue that the governance of market institutions plays a profound role in achieving market efficiency. In particular, we note that until recently, both the New York Stock Exchange and the NASDAQ were non-profit firms. We then identify an objective function for each of these firms and argue that the NYSE had an incentive to produce an informationally efficient marketplace for equities whereas the NASDAQ benefited from inefficiency. We test our hypothesis using a natural experiment, the IPO of the NYSE in 2006, and find that bid-ask spreads on the NYSE were consistently lower than the NASDAQ but then converged after demutualization. We believe that our approach helps resolve an apparent tension between competing theories of market behavior and contributes an analytical framework from which to consider regulatory changes.

Abstract:
Power points of talk on financial crisis.