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SOCIAL SCIENCE RESEARCH NETWORK
CORPORATE LAW ABSTRACTS:
CORPORATE & SECURITIES LAW
Working Paper Series
Vol. 3, No. 25: December 18, 2001
Editor: BERNARD S. BLACK
Professor of Law, University of Texas at Austin -
School of Law, Professor of Finance, McCombs
School of Business, University of Texas at Austin,
Fellow, European Corporate Governance Institute
(ECGI), Northwestern University - School of Law,
Northwestern University - Kellogg School of
Management
BBLACK@LAW.UTEXAS.EDU
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T A B L E O F C O N T E N T S
"Allocation of Initial Public Offerings and Flipping Activity"
REENA AGGARWAL
Georgetown University - Robert Emmett McDonough
School of Business
"Federal Intervention to Enhance Shareholder Choice"
LUCIAN A. BEBCHUK
Harvard University - Harvard Law School, National
Bureau of Economic Research (NBER), European
Corporate Governance Institute (ECGI)
ALLEN FERRELL
Harvard Law School, European Corporate Governance
Institute (ECGI)
"Takeover Bids vs. Proxy Fights in Contests for Corporate
Control"
LUCIAN A. BEBCHUK
Harvard University - Harvard Law School, National
Bureau of Economic Research (NBER), European
Corporate Governance Institute (ECGI)
OLIVER HART
Harvard University - Department of Economics,
National Bureau of Economic Research (NBER)
"A Defense of Shareholder Favoritism"
STEPHEN J. CHOI
New York University - School of Law
ERIC L. TALLEY
UC Berkeley (Boalt Hall) School of Law, RAND
Corporation, University of Southern California - Law
School
"Liability Exposure Effects on Earnings Conservatism: The Case
of Cross-Listed Firms"
CAREL HUIJGEN
University of Groningen
MARTIEN JAN PETER LUBBERINK
Lancaster University - Department of Accounting and
Finance, University of North Carolina at Chapel Hill
- Kenan-Flagler Business School
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"Allocation of Initial Public Offerings and Flipping Activity"
Georgetown University Working Paper
Contact: REENA AGGARWAL
Georgetown University - Robert Emmett
McDonough School of Business
Email: aggarwal@georgetown.edu
Auth-Page: http://ssrn.com/author=50700
Full Text: http://ssrn.com/abstract=274851
ABSTRACT: There is general misperception that the large trading
volume in initial public offerings (IPOs) in the aftermarket is
mostly due to "flippers" that are allocated shares in the
offering and immediately resell them in the aftermarket when the
stock starts trading. We find that on average flipping accounts
for only 19 percent of trading volume (median of 17 percent) and
15 percent of shares offered (median of 7 percent) during the
first two days of trading; institutions do more flipping than
retail customers; and hot IPOs are flipped much more than cold
IPOs. It has been argued that institutions are strong hands that
do not flip shares and are therefore allocated large proportions
of an offering. However, we find that institutions consistently
flip a larger proportion of their allocation than retail
customers and that the hypothesis that institutions are smart
investors that quickly flip cold IPOs while the underwriter is
still providing price support is not true. Investment banks
closely monitor flipping activity because excessive flipping can
put downward pressure on the stock price, particularly of weak
offerings. They have devised mechanisms, such as penalty bids, to
restrict flipping activity. In our sample, explicit penalty bids
are directly assessed only in a few IPOs and the total dollar
penalties are small.
______________________________
"Federal Intervention to Enhance Shareholder Choice"
CEPR Discussion Paper No. 3006
Contact: LUCIAN A. BEBCHUK
Harvard University - Harvard Law
School, National Bureau of Economic Research
(NBER), European Corporate Governance Institute
(ECGI)
Email: bebchuk@law.harvard.edu
Auth-Page: http://ssrn.com/author=17037
Co-Author: ALLEN FERRELL
Harvard Law School, European
Corporate Governance Institute (ECGI)
Email: fferrell@law.harvard.edu
Auth-Page: http://ssrn.com/author=174533
Full Text: http://ssrn.com/abstract=288585
ABSTRACT: In a recent article, we have put forward a new approach
to takeover law and regulatory competition. We proposed a
'choice-enhancing' federal intervention that would provide: (i)
an optional body of substantive federal takeover law which
shareholders would be able to opt into (or out of) and which
would be more hospitable than existing state takeover law, and
(ii) a mandatory process rule that would provide shareholders the
right to initiate and adopt, regardless of managers' wishes,
proposals for option into (or out of) the federal takeover law.
In this Paper, we respond to critics of our proposal, and we
further develop the case for it.
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"Takeover Bids vs. Proxy Fights in Contests for Corporate
Control"
NBER Working Paper No. W8633
Contact: LUCIAN A. BEBCHUK
Harvard University - Harvard Law
School, National Bureau of Economic Research
(NBER), European Corporate Governance Institute
(ECGI)
Email: bebchuk@law.harvard.edu
Auth-Page: http://ssrn.com/author=17037
Co-Author: OLIVER HART
Harvard University - Department of
Economics, National Bureau of Economic Research
(NBER)
Email: OHART@HARVARD.EDU
Auth-Page: http://ssrn.com/author=20286
Full Text: http://ssrn.com/abstract=293246
ABSTRACT: This paper evaluates the primary mechanisms for
changing management or obtaining control in publicly traded
corporations with dispersed ownership. Specifically, we analyze
and compare three mechanisms: (1) proxy fights (voting only); (2)
takeover bids (buying shares only); and (3) a combination of
proxy fights and takeover bids in which shareholders vote on
acquisition offers. We first show how proxy fights unaccompanied
by an acquisition offer suffer from substantial shortcomings that
limit the use of such contests in practice. We then argue that
combining voting with acquisition offers is superior not only to
proxy fights alone but also to takeover bids alone. Finally, we
show that, when acquisition offers are in the form of cash or the
acquirer's existing securities, voting shareholders can infer
from the pre-vote market trading which outcome would be best in
light of all the available public information. Our analysis has
implications for the ongoing debates in the US over poison pills
and in Europe over the new EEC directive on takeovers.
______________________________
"A Defense of Shareholder Favoritism"
USC Law and Economics Research Paper No. 01-12; and USC
CLEO Research Paper No. C01-11; and UC Berkeley Public Law
Research Paper No. 62
Contact: STEPHEN J. CHOI
New York University - School of Law
Email: stephen.choi@nyu.edu
Auth-Page: http://ssrn.com/author=45668
Co-Author: ERIC L. TALLEY
UC Berkeley (Boalt Hall) School of
Law, RAND Corporation, University of Southern
California - Law School
Email: etalley@law.berkeley.edu
Auth-Page: http://ssrn.com/author=51580
Full Text: http://ssrn.com/abstract=276424
ABSTRACT: This paper considers the efficiency implications of
managerial "favoritism" towards block shareholders of public
corporations. While favoritism can take any number of forms
(including the payment of green-mail, diversion of opportunities,
selective information disclosure, and the like), each may have
the effect (if not the intent) of securing a block shareholder's
loyalty in order to entrench management. Accordingly, the
practice of making side payments is commonly perceived to be
contrary to other shareholders' interests and, more generally,
inefficient. In contrast to this received wisdom, we argue that
when viewed ex ante, permissible acts of patronage toward block
shareholders may play an important efficiency role that benefits
all shareholders alike. We demonstrate that the prospect of
having to share rents with a third party may itself have a
deterrent effect on managerial self-dealing - an off-equilibrium
benefit that would not be readily apparent if one looked only at
instances where favoritism actually occurs in practice.
______________________________
"Liability Exposure Effects on Earnings Conservatism: The Case
of Cross-Listed Firms"
Lancaster University, Department of Accounting &
Finance Working Paper No. 2001/04; EFMA 2002 London Meetings
Contact: CAREL HUIJGEN
University of Groningen
Email: c.a.huijgen@eco.rug.nl
Auth-Page: http://ssrn.com/author=182949
Co-Author: MARTIEN JAN PETER LUBBERINK
Lancaster University - Department of
Accounting and Finance, University of North
Carolina at Chapel Hill - Kenan-Flagler Business
School
Email: m.lubberink@lancaster.ac.uk
Auth-Page: http://ssrn.com/author=255102
Full Text: http://ssrn.com/abstract=282412
ABSTRACT: In this study we investigate earnings conservatism of
cross-listed and domestically listed companies. We expect that
conservatism will be more pronounced for cross-listed companies
because they face the threat of litigation from a wider audience
of shareholders than companies with a domestic listing only.
Specifically, we compare conservatism of Dutch firms with a
listing in the US to conservatism of Dutch firms without a US
listing. The motivation to investigate this specific setting is
that the liability exposure of managers and auditors in the US
market is considered as far more burdensome than in the Dutch
market.
Empirical findings for the period from 1993 to 2000 show that
Dutch GAAP earnings of cross-listed firms are significantly more
conservative than earnings reported by firms with a domestic
listing only. This may imply that company managers view their
domestic earnings information as the primary mode of
communication with their shareholders irrespective of their
origin. Further, the results seem to suggest that managers more
or less mechanistically apply financial reporting requirements of
foreign regulators.
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A D V I S O R Y B O A R D
Corporate Law: Corporate & Securities Law, Archives of Vols. 1-3,
1999-2001
WILLIAM T. ALLEN
Director, NYU Center for Law & Business, Professor of Law and
Clinical Professor of Business, New York University School of
Law
DAVID J. BERGER
Partner, Wilson Sonsini Goodrich & Rosati
JOHN C. COFFEE
Adolf A. Berle Professor of Law and Director of the Center on
Corporate Governance, Columbia Law School, Fellow, European
Corporate Governance Institute (ECGI), Fellow, American Academy
of Arts & Sciences
MELVIN A. EISENBERG
University of California, Berkeley - School of Law
RONALD J. GILSON
Meyers Professor of Law and Business, Stanford Law School,
Marc & Eva Stern Professor of Law and Business, Columbia Law
School
JOSEPH GRUNDFEST
William A. Franke Professor of Law and Business, Stanford
University Law School
REINIER KRAAKMAN
Ezra Ripley Thayer Professor of Law, Harvard Law School,
Fellow, European Corporate Governance Institute
KENNETH LEHN
Professor of Business Administration, University of
Pittsburgh - Finance Group
ROBERTA ROMANO
Oscar M. Ruebhausen Professor of Law, Yale Law School,
National Bureau of Economic Research (NBER), Fellow, European
Corporate Governance Institute (ECGI)
KATHERINE SCHIPPER
Thomas F. Keller of Business Administration, Duke University
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