An Empirical Study of Corporate Default Rules and Menus in China, Hong Kong and Taiwan

15(4) Journal of Empirical Legal Studies 875-915 (2018)

42 Pages Posted: 8 Jul 2016 Last revised: 5 Dec 2018

See all articles by Yu-Hsin Lin

Yu-Hsin Lin

City University of Hong Kong (CityUHK) - School of Law; City University of Hong Kong (CityUHK) - Centre for Chinese & Comparative Law

Yun-chien Chang

Academia Sinica - Institutum Iurisprudentiae (IIAS); New York University School of Law

Multiple version iconThere are 2 versions of this paper

Date Written: June 28, 2017

Abstract

Competing theories of default rules and menus in contract law and corporate law provide different accounts of their effects. However, empirical studies are scant, and all focus on American law. Given that corporate ownership outside of the U.S. is usually concentrated, and institutional settings are vastly different, one might wonder whether corporate law and economic theories on default rules and menus aptly explain corporate practices in other countries. To that end, this article analyzes a unique dataset of 498 randomly sampled and hand-coded charters of public firms in China, Hong Kong, and Taiwan. While the data do not enable us to make causal inferences, we make descriptive contribution to the literature by examining whether corporate practices in the studied jurisdictions are consistent with the American theories. The major findings are that firms often opted into menus and rarely opted out of default rules without menus, thereby supporting the minimization of transaction cost theory. However, Chinese firms may follow default rules for non-economic reasons. Hansmann’s delegation theory explains the short corporate charters observed in Taiwan, but not those in China and Hong Kong. Corporations in China, Hong Kong, and Taiwan do not appear to be systematically more pro-minority or pro-controller than their jurisdictions’ corporate laws. This contradicts the principal-agent theory.

Keywords: Mandatory rule, minimum threshold rule, default rule, menu, null rule, transaction costs, principal-agent theory, corporate charters

JEL Classification: K22, K12

Suggested Citation

Lin, Yu-Hsin and Chang, Yun-chien, An Empirical Study of Corporate Default Rules and Menus in China, Hong Kong and Taiwan (June 28, 2017). 15(4) Journal of Empirical Legal Studies 875-915 (2018). Available at SSRN: https://ssrn.com/abstract=2805870

Yu-Hsin Lin

City University of Hong Kong (CityUHK) - School of Law ( email )

Tat Chee Avenue
Kowloon
Hong Kong

HOME PAGE: http://www6.cityu.edu.hk/slw/people/people_Yu_Hsin.html

City University of Hong Kong (CityUHK) - Centre for Chinese & Comparative Law

83 Tat Chee Avenue
Room P5300, 5th Floor, Academic 1
Kowloon Tong
Hong Kong

Yun-chien Chang (Contact Author)

Academia Sinica - Institutum Iurisprudentiae (IIAS) ( email )

128 Academia Sinica Rd., Sec. 2
Nankang
Taipei City, 11529
Taiwan

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

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