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Separation and the Function of Corporation Law

Ronald J. Gilson

Stanford Law School; Columbia Law School; European Corporate Governance Institute (ECGI)

January 2005

Stanford Law and Economics Olin Working Paper No. 307
Columbia Law and Economics Working Paper No. 277
ECGI - Law Working Paper No. 45/2005

This article is part of a symposium in honor of William Klein on the subject of a functional typology of corporation law. Any typology must be animated by an underlying theory whose terms dictate the lines the typology draws. Here the focus is on the level of the theory that might animate the architecture of the grid. In particular, the article addresses the separation theorem, which states the implications of complete capital markets on shareholder preferences concerning corporate investment policy. The proposition is that the presence of markets in the characteristics that determine equity value makes a radical difference in the function played by corporate law, in these circumstances essentially limiting the criteria for good corporate law to a single overriding goal: facilitating the maximization of shareholder wealth. I will illustrate the usefulness of a uni-criterion view of corporate law by briefly taking up two familiar issues that span the corporate law domain: the idea of a stakeholder-oriented board of directors in public corporations and the role of the courts in enforcing the reasonable expectations of private corporation shareholders.

Number of Pages in PDF File: 16

Keywords: Shareholders vs. stakeholders, close corporations

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Date posted: June 1, 2005  

Suggested Citation

Gilson, Ronald J., Separation and the Function of Corporation Law (January 2005). Stanford Law and Economics Olin Working Paper No. 307; Columbia Law and Economics Working Paper No. 277; ECGI - Law Working Paper No. 45/2005. Available at SSRN: https://ssrn.com/abstract=732832 or http://dx.doi.org/10.2139/ssrn.732832

Contact Information

Ronald J. Gilson (Contact Author)
Stanford Law School ( email )
559 Nathan Abbott Way
Stanford, CA 94305-8610
United States
650-723-0614 (Phone)
650-725-0253 (Fax)

Columbia Law School ( email )
435 West 116th Street
New York, NY 10025
United States
212-854-1655 (Phone)
212-854-7946 (Fax)

European Corporate Governance Institute (ECGI)
B-1050 Brussels
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