From Delaware to Israel: Evaluating Israel's Quasi Experiment of a Specialized Corporate Court

73 Pages Posted: 19 Jun 2015

Date Written: May 30, 2015

Abstract

The Delaware Court of Chancery’s success has made the court a role model for both specialized economic courts in the United States and worldwide. Specialized economic courts are perceived by international organizations such as the World Bank and the OECD as an important element in the creation of a capable and effective judiciary, typically a perquisite for economic growth. In December 2010, Israel's legislature established a specialized division in Tel Aviv District Court to adjudicate corporate and securities law violations. This study is the first to examine the reform’s results and to provide an empirical account of securities civil litigation in Israel since the specialized division’s implementation. We employed a quasi-experimental research design to evaluate whether this structural change in the court affected civil enforcement through class and derivative actions in terms of litigation rates, forum selection, and court performance. In addition, a network analysis method was used to evaluate the new tribunal’s contribution to the formulation of a new body of law in the financial field.

By manually curating 242 class and derivative actions adjudicated by both the specialized division and general district courts from 2006 to 2014, we found that although the new tribunal did not lead to the initiation of a greater number of procedures, it did cause a major shift in forum selection and thus became the center of securities litigation in Israel. Moreover, specialization has led to greater efficiency in the Tel Aviv District Court and therefore has made this court equivalent to other district courts even though this court handles the more complex cases that are typical of the economic capital of Israel. More importantly, the new tribunal set numerous precedents that help clarify the legal constraints on actors in the financial market and promote deterrence. Finally, the specialized judges rely on each other’s decisions and, as such, operate as a united bench to develop coherent and consistent case law.

We conclude that in the Israeli context, specialization has proven an effective means to empower the judiciary and to promote investor protection. As such, with one foot in the civil procedure realm and the other in the corporate governance realm, this study reveals the connections between specialization, civil enforcement, and the creation of new norms by the judiciary in the financial field.

Keywords: specialized courts, specialization, empirical, class action, derivative action, Israel, litigation

JEL Classification: C93, C23, G30, K22, K41, K42

Suggested Citation

Aran, Yifat, From Delaware to Israel: Evaluating Israel's Quasi Experiment of a Specialized Corporate Court (May 30, 2015). Available at SSRN: https://ssrn.com/abstract=2619916 or http://dx.doi.org/10.2139/ssrn.2619916

Yifat Aran (Contact Author)

Stanford University ( email )

559 Nathan Abbott Way
Stanford, CA 94305
United States

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