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

41 Pages Posted: 8 Nov 2018

See all articles by Lauren Yu-Hsin Lin

Lauren 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); Cornell University - Law School

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Date Written: December 2018

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 U.S. law. Given that corporate ownership outside of the United State 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 a descriptive contribution to the literature by examining whether corporate practices in the studied jurisdictions are consistent with the U.S. 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 noneconomic 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.

Suggested Citation

Lin, Lauren Yu-Hsin and Chang, Yun-chien, An Empirical Study of Corporate Default Rules and Menus in China, Hong Kong, and Taiwan (December 2018). Journal of Empirical Legal Studies, Vol. 15, Issue 4, pp. 875-915, 2018, Available at SSRN: https://ssrn.com/abstract=3279649 or http://dx.doi.org/10.1111/jels.12200

Lauren Yu-Hsin Lin (Contact Author)

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

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Yun-chien Chang

Academia Sinica - Institutum Iurisprudentiae (IIAS) ( email )

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Taipei City, 11529
Taiwan

Cornell University - Law School ( email )

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Cornell University
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United States

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