KATE LITVAK, University of Texas at Austin School of Law
Email: klitvak@law.utexas.edu

Prior studies find that foreign firms subject to the Sarbanes-Oxley Act ("SOX") suffered significant declines in market valuation; these declines are too large to be fully explained by the increased costs of direct compliance. This paper investigates one possible source of losses - the charge that SOX discourages corporate risk-taking. I use a triple difference methodology to estimate the effect of SOX on risk-taking by SOX-exposed foreign firms. I match each foreign cross-listed firm to a similar non-cross-listed firm from the same country based on propensity to cross-list. I measure the "pair" risk - the difference between the risk of a cross-listed firm and the risk of its match (first difference). I then estimate the after-minus-before SOX change in pair risk (second difference). Finally, I compare the after-minus-before changes in pair risk for SOX-exposed pairs (where the cross-listed company is listed on level 2 or 3 and is thus subject to SOX) to the change for SOX-unexposed pairs (where the cross-listed company is listed on level 1 or 4 and is thus not subject to SOX) (third difference). I use three sets of proxies for risk: volatility of returns, financial leverage, and cash hording. I find that the risk of SOX-exposed foreign firms declined significantly after SOX on all three measures. High-Tobin's Q firms suffered larger declines in risk. Firms that were riskier before SOX lost more of their value after SOX. This evidence is consistent with the view that SOX induced cross-listed firms to take fewer risks, and placed a particular burden on riskier and better-governed firms.

LAWTON P. CUMMINGS, George Washington University - Law School, Washington and Lee University - School of Law
Email: lcummings@law.gwu.edu

When conducting an internal investigation into potential wrongdoing within a corporation on behalf of a corporate client, a corporate lawyer has an ethical duty to warn the employee interviewee that the lawyer represents the corporation, rather than the interviewee, and that the corporation may eventually waive the attorney-client privilege, which would allow for the disclosure of the employee's communications with the attorney. However, attorneys often give "watered-down" warnings in an effort to extract full information from employees and zealously represent their clients, the employer corporations.

As the result of these "watered-down" warnings, many individual employees have disclosed information to corporate attorneys, believing that they were communicating within a personal attorney-client relationship. The Circuits are split on whether an individual employee who had a reasonable belief that he was communicating with his counsel can assert the attorney-client privilege to block the disclosure of his communications when the corporation waives the privilege.

This article examines the differing judicial approaches within the framework of the major theoretical justifications for the attorney-client privilege, utilitarian justifications, and individual rights-based justifications. In doing so, the article exposes the weaknesses of the approach that errs in favor of the corporation and disclosure, and argues that the only approach justifiable by utilitarianism or rights-based justifications is the approach that errs in the favor of the individual and confidentiality.

FRÉDÉRIC PALOMINO, ENSAE
Email: frederic.palomino@gmail.com
LUC RENNEBOOG, Tilburg University - Department of Finance, European Corporate Governance Institute (ECGI)
Email: Luc.Renneboog@uvt.nl
CHENDI ZHANG, University of Warwick - Finance Group
Email: chendi.zhang@wbs.ac.uk

Soccer clubs listed on the London Stock Exchange provide a unique way of testing stock price reactions to different types of news. For each firm, two pieces of information are released on a weekly basis: experts' expectations about game outcomes through the betting odds, and the game outcomes themselves. The stock market reacts strongly to news about game results, generating significant abnormal returns and trading volumes. We find evidence that the abnormal returns for the winning teams do not reflect rational expectations but are high due to overreactions induced by investor sentiment. This is not the case for losing teams. There is no market reaction to the release of new betting information although these betting odds are excellent predictors of the game outcomes. The discrepancy between the strong market reaction to game results and the lack of reaction to betting odds may not only be the result from overreaction to game results but also from the lack of informational content or information salience of the betting information. Therefore, we also examine whether betting information can be used to predict short-run stock returns subsequent to the games. We reach mixed results: we conclude that investors ignore some non-salient public information such as betting odds, and betting information predicts a stock price overreaction to game results which is influenced by investors' mood (especially when the teams are strongly expected to win).

TEODORA PALIGOROVA, Bank of Canada
Email: tpaligorova@bankofcanada.ca

According to the rent-extraction hypothesis, weak corporate governance allows entrenched CEOs to capture the pay-setting process and benefit from events outside of their control - get paid for luck. In this paper, I find that the independence requirement imposed on boards of directors by the Sarbanes-Oxley Act of 2002 (SOX), together with the governance regulations subsequently introduced by stock exchanges, affects CEO pay structure. In firms whose corporate boards were originally less independent, and thus more affected by these provisions, CEO pay for performance strengthened while pay for luck decreased after adopting SOX. In contrast, those firms that exhibited strong board independence prior to SOX showed little evidence of pay for luck and little change in pay for performance following the adoption of SOX. The results are consistent with the rent-extraction hypothesis and robust to alternative explanations such as asymmetric benchmarks, market structure, and managerial talent.

LEE A. HARRIS, University of Memphis - Cecil C. Humphreys School of Law
Email: laharris@memphis.edu

The title of the basic business law course - Corporations, Business Associations, Business Organizations, or Business Entities - varies from law school to law school and from year to year. However, in these courses, the core coverage is essentially the same - agency principles, partnership law, fiduciary duties, securities fraud, and changes in corporate control. This relatively concise book is intended to reach students in the basic corporate law course, regardless of course title. This book attempts to make the usual coverage as easy and straightforward as possible. Although the vast majority of law students take a business law course, there are surprisingly few attempts to systematically organize the most important doctrine and theories covered. Of the few books that track the basic business law course, even fewer still are of recent vintage. This book attempts to fill those lacunae.

The book intends to aid students, of course, in the basic Corporations or Business Organizations courses. Additionally, though, I should like to think this book would be a useful resource to students in other closely-related courses in law school, like Agency & Partnership, Closely-Held Firms, Mergers & Acquisitions, and Securities Regulation, to name just a few. Outside of law schools, I am also writing with an eye toward the graduate student in business administration who are frequently enrolled in a basic business law course and the newly-minted corporate attorney who wants a refresher text. In addition to a review of the doctrine, I also want to give the reader a sense of the theory and history behind the more complicated concepts. With any luck, the book's contribution to the theory and history of corporate law is as pervasive as the concentration on doctrine.

RON HARRIS, Tel Aviv University - Buchmann Faculty of Law
Email: harrisr@post.tau.ac.il
MICHAEL CRYSTAL Q. C., 3-4 South Square Barristers
Email: kirstendent@southsquare.com

This Article discusses the transplantation and harmonisation of company law legislation in the British Empire in the early 20th century and in Palestine in particular. It describes the displacement of Ottoman law and its replacement by British company law in Palestine, particularly through the Palestine Companies Ordinance 1929.

The Article suggests that transplantation of British company legislation into Palestine was neither straightforward nor all encompassing.

The Article discusses some specific areas of transplantation difficulty in the case of mandatory Palestine viz private companies, foreign companies, branch registers and limits on land acquisition

HOWELL E. JACKSON, Harvard Law School
Email: HJACKSON@LAW.HARVARD.EDU

This essay proposes a phased transformation of financial regulation in the United States to focus the Federal Reserve Board on oversight of market stability, including systemically important institutions throughout the financial services industry, and to assign all other regulatory functions, including routine supervision and consumer protection, to an independent consolidated agency.

I. The authority of the Federal Reserve Board to oversee financial market stability should be expanded to cover all sources of systemic risk in the financial services industry, should be structured to coordinate effectively with other supervisory agencies, and should be designed to allow for consistent, appropriate forms of intervention in response to systemic risks.

II. Even after the authority of the Federal Reserve Board has been expanded, the consolidation of other federal financial regulatory functions should proceed; the experience of other leading jurisdictions indicates that consolidated supervision offer numerous benefits in terms of the quality and completeness of financial regulation and that the principal objections to consolidated supervision can be met through statutory safeguards and institutional design.

III: Experience in other leading jurisdictions also demonstrates that many of the benefits of consolidated oversight can be achieved without the statutory consolidation of front-line supervisory units and the world's premiere consolidated agency, the British FSA, was established in a multi-stage process whereby the enactment and implementation of new substantive statutes did not occur until the FSA has been in operations for several years.

IV. Drawing on these experiences, U.S. regulatory consolidation should follow a four-stage process: 1) immediate enhancement of the President's Working Group on Financial Markets; 2) prompt enactment of legislation creating an independent United States Financial Services Authority (USFSA or Authority) to provide industry-wide oversight, coordinate existing regulatory structures, and lay the groundwork for combination of existing supervisory agencies; 3) a second round of legislation authorizing the merger into the USFSA all other federal supervisory agencies; and 4) resolution of the organizational structure of the Authority should be postponed until regulatory consolidation is complete.

V. This four-phase approach to regulatory consolidation improves the likelihood of successful transition by delaying controversial decisions, avoiding unnecessary steps, and providing an organizational structure that can lead reform while safeguarding continuity of supervision.

VI. The creation of a United States Financial Services Authority is also consistent with expansion of the Federal Reserve Board's role in overseeing market stability and would actually improve the capacity of the Board to perform that function effectively.

JESSE M. FRIED, University of California, Berkeley - School of Law
Email: FRIEDJ@MAIL.LAW.BERKELEY.EDU

The securities laws currently permit certain firms to exit the mandatory disclosure system even though their shares are held by hundreds (or even thousands) of investors and continue to be publicly traded. Such exiting firms are said to "go dark" because they subsequently provide little information to public investors. This paper addresses the going-dark phenomenon and its implications for the debate over mandatory disclosure. Mandatory disclosure's critics contend that insiders of publicly traded firms will always voluntarily provide adequate information to investors. The disclosure choices of gone-dark firms raise doubts about this claim. The paper also puts forward a new approach to regulating going-dark firms: giving public shareholders a veto right over exits from mandatory disclosure. Such an approach, it shows, will prevent undesirable exits from mandatory disclosure while preserving firms' ability to engage in value-increasing exits.