This paper examines legal rules covering protection of corporate shareholders and creditors, the origin of these rules, and the quality of their enforcement in 49 countries. The results show that common law countries generally have the best, and French civil law countries the worst, legal protections of investors, with German and Scandinavian civil law countries located in the middle. We also find that concentration of ownership of shares in the largest public companies is negatively related to investor protections, consistent with the hypothesis that small, diversified shareholders are unlikely to be important in countries that fail to protect their rights.

Law and Finance

This paper examines legal rules covering protection of corporate shareholders and creditors, the origin of these rules, and the quality of their enforcement in 49 countries. The results show that common-law countries generally have the strongest, and Frenchcivil-law countries the weakest, legal protections of investors, with German- and Scandinavian-civil-law countries located in the middle. We also find that concentration of ownership of shares in the largest public companies is negatively related to investor protections, consistent with the hypothesis that small, diversified shareholders are unlikely to be important in countries that fail to protect their rights.

This paper surveys research on corporate governance, with special attention to the importance of legal protection of investors and of ownership concentration in corporate governance systems around the world.

A Survey of Corporate Governance

This article surveys research on corporate governance, with special attention to the importance of legal protection of investors and of ownership concentration in corporate governance systems around the world. CORPORATE GOVERNANCE DEALS WITH the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment. How do the suppliers of finance get managers to return some of the profits to them? How do they make sure that managers do not steal the capital they supply or invest it in bad projects? How do suppliers of finance control managers? At first glance, it is not entirely obvious why the suppliers of capital get anything back. After all, they part with their money, and have little to contribute to the enterprise afterward. The professional managers or entrepreneurs who run the firms might as well abscond with the money. Although they sometimes do, usually they do not. Most advanced market economies have solved the problem of corporate governance at least reasonably well, in that they have assured the flows of enormous amounts of capital to firms, and actual repatriation of profits to the providers of finance. But this does not imply that they have solved the corporate governance problem perfectly, or that the corporate governance mechanisms cannot be improved. In fact, the subject of corporate governance is of enormous practical impor

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In a corporation with many small owners, it may not pay any one of them to monitor the performance of the management We explore a model in which the presence of a large minority shareholder provides a partial solution to this free-rider problem The model sheds light on the following questions: Under what circumstances will we observe a tender offer as opposed to a proxy fight or an internal management shake-up? How strong are the forces pushing toward increasing concentration of ownership of a diffusely held firm? Why do corporate and personal investors commonly hold stock in the same firm, despite their disparate tax preferences?

https://ecsocman.hse.ru/data/844/126/1231/shleifer_vishny_-_1986.pdf

Large Shareholders and Corporate Control

The corporate contract limited liability voting the fiduciary principle the business judgment rule, and the derivative suit corporate control transactions the appraisal remedy tender offers the incorporation debate and state antitakeover statutes close corporations trading on inside information mandatory disclosure optimal damages.

The economic structure of corporate law

Imagine two firms, A and B, which are identical in all respects except that, in its charter, firm A prohibits the trading of its shares based on inside (nonpublic) information. The firm requires insiders (employees) to report their trades, which a special committee or an independent accounting firm then checks to ensure compliance with the charter provision. Firm B, by contrast, neither prohibits insider trading nor requires reporting. Insiders openly trade shares of firm B and regularly earn positive abnormal returns. In competitive capital markets, which charter provision will survive? Despite the deceptive simplicity of this question, it has no obvious answer.' The consensus, to the extent that any exists, appears to be that firm A's charter will survive because it eliminates various per-

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The Regulation of Insider Trading

ONE of the themes of The Modern Corporation and Private Property is that managers use the machinery of voting to seize control of corporations. Managers name the slates of candidates and control the agents who cast proxy ballots. Shareholders are apathetic in the best of times because it is so unlikely that their votes would make a difference, but managers' domination of the proxy machinery is the coup de grace. "The proxy machinery has thus become one of the principal instruments not by which a stockholder exercises power over management of the enterprise, but by which his power is separated from him."' Hundreds of people, writing in what they take to be the Berle and Means tradition, have argued that the machinery of voting must be reformed so that the firm's "owners" may reclaim "power over management." They call for managers to disclose fully their own interests and the status of the firm at the time of solicitation; for corporations to give shareholders free access to the proxy machinery so that shareholders may make their own proposals; for corporate boards to establish nominating committees of directors unaffiliated with management, and for these committees to control access by both managers and shareholders at large to the election machinery. Other proposals call for shareholders to make more decisions themselves, including selection of the firm's accountants, and for legal restrictions on the ability of directors to spend firms' funds campaigning for reelection. Implementation of these proposals, it is said,

Voting in Corporate Law

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The Proper Role of a Target's Management in Responding to a Tender Offer

IT HE Securities Act of 1933 and the Securities Exchange Act of 1934 have escaped the fate of many other early New Deal programs Some of their companions, such as the National Industrial Recovery Act, were declared unconstitutional; others such as the Robinson-Patman Act, have fallen into desuetude; still others, such as Social Security, have been so changed that they would be unrecognizable to their creators Many of the New Deal programs of regulation lost their political support and were replaced by deregulation; communications and transportation are prime examples The securities laws, however, have retained not only their support but also their structure They had and still have two basic components: a prohibition against fraud, and requirements of disclosure when securities are issued and periodically thereafter The notorious complexities of securities practice arise from defining the details of disclosure and ascertaining which transactions are covered by the disclosure requirements There is very little substantive regulation of investments To be sure, the Securities and Exchange Commission (SEC) occasionally uses the rubric of disclosure to affect substance, as when it demands that insiders not trade without making "disclosures" that would make trading pointless, when it requires that a going private deal "disclose" that the price is "fair," and when it insists that the price of accelerated registration of a prospectus is "disclosure" that directors will not be indemnified for certain wrongs

/pdf/mandatory-disclosure-and-the-protection-of-investors-4camr6nnbw.pdf

Daniel R. Fischel

Papers

The economic structure of corporate law

The Regulation of Insider Trading

Voting in Corporate Law

The Proper Role of a Target's Management in Responding to a Tender Offer

Mandatory Disclosure and the Protection of Investors