as published in Journal of Empirical Legal Studies Vol. 6, pp. 687-722, 2009
36 Pages Posted: 16 Apr 2008 Last revised: 19 Oct 2010
Date Written: February 13, 2009
IIt is often assumed that strong securities markets require good legal protection of minority shareholders. This implies both "good" law -- principally corporate and securities law -- and enforcement, yet there has been little empirical analysis of enforcement. We study private enforcement of corporate law in two common law jurisdictions with highly developed stock markets, the United Kingdom and the United States, examining how often directors of publicly traded companies are sued, and the nature and outcomes of those suits.
We find, based a comprehensive search for filings over 2004-2006, that lawsuits against directors of public companies alleging breach of duty are nearly nonexistent in the UK. The US is more litigious, but we still find, based on a nationwide search of decisions between 2000-2007, that only a small percentage of public companies face a lawsuit against directors alleging a breach of duty that is sufficiently contentious to result in a reported judicial opinion, and a substantial fraction of these cases are dismissed.
We examine possible substitutes in the UK for formal private enforcement of corporate law and find some evidence of substitutes, especially for takeover litigation. Nonetheless, our results suggest that formal private enforcement of corporate law is less central to strong securities markets than might be anticipated.
Keywords: Private enforcement, corporate law, derivative actions, public enforcement, comparative corporate law
JEL Classification: G38, K22, K41
Suggested Citation: Suggested Citation
Armour, John and Black, Bernard S. and Cheffins, Brian R. and Nolan, Richard, Private Enforcement of Corporate Law: An Empirical Comparison of the UK and US (February 13, 2009). as published in Journal of Empirical Legal Studies Vol. 6, pp. 687-722, 2009; U of Texas Law, Law and Econ Research Paper No. 89; McCombs Research Paper Series, Paper No. FIN-02-07; Oxford Legal Studies Research Paper No. 1105355; 3rd Annual Conference on Empirical Legal Studies Papers; ECGI - Law Working Paper No. 120; ECGI - Finance Working Paper No. 234. Available at SSRN: https://ssrn.com/abstract=1105355