It comes as something ofa surprise to reflect that the New York Review ofBooks is now over twenty years old. Even people of my generation (that is, old enough to remember the revolutionary 196os but not young enough to have taken a very exciting part in them) think of the paper as eternally youthful. In fact, it has gone through years of relatively quiet life, yet, as always in a competitive journalistic market, it is the controversies that attract the interest of the reader and to which the history (especially an admittedly impressionistic survey that tries to include something of the intellectual context in which a journal has operated) must give some attention. Not all the attacks which the New York Review has attracted, both early in its career and more recently, are worth more than a brief summary. What do we now make, for example, of Richard Kostelanetz's forthright accusation that 'The New York Review was from its origins destined to publicize Random House's (and especially [Jason] Epstein's) books and writers'?1 Well, simply that, even if the statistics bear out the charge (and Kostelanetz provides some suggestive evidence to support it, at least with respect to some early issues), there is nothing surprising in a market economy about a publisher trying to push his books through the pages of a journal edited by his friends. True, the New York Review has not had room to review more than around fifteen books in each issue and there could be a bias in the selection of

http://www.jstor.org/stable/pdfplus/3507774.pdf

The New York Review of Books

American Bankruptcy Institute Law Review 17 Am. Bankr. Inst. L. Rev., No. 1, Spring, 2009. Boston College Law Review 50 B.C. L. Rev., No. 3, May, 2009. Boston University Public Interest Law Journal 18 B.U. Pub. Int. L.J., No. 2, Spring, 2009. Cardozo Journal of Conflict Resolution 10 Cardozo J. Conflict Resol., No. 2, Spring, 2009. Cardozo Public Law, Policy, & Ethics Journal 7 Cardozo Pub. L. Pol’y & Ethics J., No. 3, Summer, 2009. Chicago Journal of International Law 10 Chi. J. Int’l L., No. 1, Summer, 2009. Colorado Journal of International Environmental Law and Policy 20 Colo. J. Int’l Envtl. L. & Pol’y, No. 2, Winter, 2009. Columbia Journal of Law & the Arts 32 Colum. J.L. & Arts, No. 3, Spring, 2009. Connecticut Public Interest Law Journal 8 Conn. Pub. Int. L.J., No. 2, Spring-Summer, 2009. Cornell Journal of Law and Public Policy 18 Cornell J.L. & Pub. Pol’y, No. 1, Fall, 2008. Cornell Law Review 94 Cornell L. Rev., No. 5, July, 2009. Creighton Law Review 42 Creighton L. Rev., No. 3, April, 2009. Criminal Law Forum 20 Crim. L. Forum, Nos. 2-3, Pp. 173-394, 2009. Delaware Journal of Corporate Law 34 Del. J. Corp. L., No. 2, Pp. 433-754, 2009. Environmental Law Reporter News & Analysis 39 Envtl. L. Rep. News & Analysis, No. 7, July, 2009. European Journal of International Law 20 Eur. J. Int’l L., No. 2, April, 2009. Family Law Quarterly 43 Fam. L.Q., No. 1, Spring, 2009. Georgetown Journal of International Law 40 Geo. J. Int’l L., No. 3, Spring, 2009. Georgetown Journal of Legal Ethics 22 Geo. J. Legal Ethics, No. 2, Spring, 2009. Golden Gate University Law Review 39 Golden Gate U. L. Rev., No. 2, Winter, 2009. Harvard Environmental Law Review 33 Harv. Envtl. L. Rev., No. 2, Pp. 297-608, 2009. International Review of Law and Economics 29 Int’l Rev. L. & Econ., No. 1, March, 2009. Journal of Environmental Law and Litigation 24 J. Envtl. L. & Litig., No. 1, Pp. 1-201, 2009. Journal of Legislation 34 J. Legis., No. 1, Pp. 1-98, 2008. Journal of Technology Law & Policy 14 J. Tech. L. & Pol’y, No. 1, June, 2009. Labor Lawyer 24 Lab. Law., No. 3, Winter/Spring, 2009. Michigan Journal of International Law 30 Mich. J. Int’l L., No. 3, Spring, 2009. New Criminal Law Review 12 New Crim. L. Rev., No. 2, Spring, 2009. Northern Kentucky Law Review 36 N. Ky. L. Rev., No. 4, Pp. 445-654, 2009. Ohio Northern University Law Review 35 Ohio N.U. L. Rev., No. 2, Pp. 445-886, 2009. Pace Law Review 29 Pace L. Rev., No. 3, Spring, 2009. Quinnipiac Health Law Journal 12 Quinnipiac Health L.J., No. 2, Pp. 209-332, 2008-2009. Real Property, Trust and Estate Law Journal 44 Real Prop. Tr. & Est. L.J., No. 1, Spring, 2009. Rutgers Race and the Law Review 10 Rutgers Race & L. Rev., No. 2, Pp. 441-629, 2009. San Diego Law Review 46 San Diego L. Rev., No. 2, Spring, 2009. Seton Hall Law Review 39 Seton Hall L. Rev., No. 3, Pp. 725-1102, 2009. Southern California Interdisciplinary Law Journal 18 S. Cal. Interdisc. L.J., No. 3, Spring, 2009. Stanford Environmental Law Journal 28 Stan. Envtl. L.J., No. 3, July, 2009. Tulsa Law Review 44 Tulsa L. Rev., No. 2, Winter, 2008. UMKC Law Review 77 UMKC L. Rev., No. 4, Summer, 2009. Washburn Law Journal 48 Washburn L.J., No. 3, Spring, 2009. Washington University Global Studies Law Review 8 Wash. U. Global Stud. L. Rev., No. 3, Pp.451-617, 2009. Washington University Journal of Law & Policy 29 Wash. U. J.L. & Pol’y, Pp. 1-401, 2009. Washington University Law Review 86 Wash. U. L. Rev., No. 6, Pp. 1273-1521, 2009. William Mitchell Law Review 35 Wm. Mitchell L. Rev., No. 4, Pp. 1235-1609, 2009. Yale Journal of International Law 34 Yale J. Int’l L., No. 2, Summer, 2009. Yale Journal on Regulation 26 Yale J. on Reg., No. 2, Summer, 2009.

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Current index to legal periodicals

What external control mechanisms are most effective in detecting corporate fraud? To address this question we study in depth all reported cases of corporate fraud in companies with more than 750 million dollars in assets between 1996 and 2004. We find that fraud detection does not rely on one single mechanism, but on a wide range of, often improbable, actors. Only 6% of the frauds are revealed by the SEC and 14% by the auditors. More important monitors are media (14%), industry regulators (16%), and employees (19%). Before SOX, only 35% of the cases were discovered by actors with an explicit mandate. After SOX, the performance of mandated actors improved, but still account for only slightly more than 50% of the cases. We find that monetary incentives for detection in frauds against the government influence detection without increasing frivolous suits, suggesting gains from extending such incentives to corporate fraud more generally.

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Who Blows the Whistle on Corporate Fraud

We survey institutional investors to better understand their role in the corporate governance of firms. Consistent with a number of theories, we document widespread behind-the-scenes intervention as well as governance-motivated exit. These governance mechanisms are viewed as complementary devices, with intervention typically occurring prior to a potential exit. We further find that long-term investors and investors that are less concerned about stock liquidity intervene more intensively. Finally, we find that most investors use proxy advisors and believe that the information provided by such advisors improves their own voting decisions.

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Behind the scenes: the corporate governance preferences of institutional investors

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How does Supreme Court precedent affect lower court decisions when there is asymmetric probability of appellate review? Using securities fraud class actions filed between 2003 and 2007, we study the impact of a widely-followed Supreme Court decision from that period, Tellabs, Inc. v. Makor Issues & Rights, Ltd. Tellabs clarified the law with respect to one of the most contested issues in securities litigation: pleading scienter. The Tellabs decision reversed a lenient Seventh Circuit reasonableness standard for pleading scienter, but replaced it with a standard that is nonetheless relatively generous to plaintiffs. Would the Supreme Court’s directive cause the dismissal rates in the lower courts to converge? Looking at opinions resolving motions to dismiss decided before and after that decision, we find that Tellabs correlates with a significantly lower dismissal rate on scienter grounds in circuits previously applying a higher preponderance standard for scienter, particularly the Ninth Circuit. By contrast, we find no significant shift in the courts previously applying the lower reasonableness standard in our basic model. Looking at judicial characteristics that might explain the higher dismissal rates in the preponderance circuits, we find that judges who have substantial business caseloads or who were nominated by Republican presidents became substantially less likely to dismiss on scienter grounds after Tellabs. Consistent with the greater difficulty involved in obtaining dismissal, Tellabs correlates with an increase in low value settlements in the Ninth Circuit. Conversely, Tellabs also correlates with a decrease in low value settlements in circuits that previously applied the more lenient Seventh Circuit standard. Overall, we conclude that Tellabs led to increased uniformity in how lower courts apply pleading standards, but its effect is muted by the asymmetry of the right to appeal.

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The Supreme Court’s Impact on Securities Class Actions: An Empirical Assessment of Tellabs

The Article surveys the growing law and finance literature providing evidence that legal protections for minority investors (and accompanying private and public institutions) correlate with various indices of financial development. Evidence in particular exists that countries with a common law origin enjoy both strong levels of investor protection as well as superior financial performance compared with civil law origin countries. Correlation does not mean causation, however. The Article examines the evidence related to whether the legal regime in fact causes financial development. Even if the legal regime does in fact cause such development, a question remains: How to generate investor-friendly legal regimes. Evidence on the efficacy of top-down reforms, including the transplant of laws from one regime to another, is examined. As an alternative, the Article puts forth the hypothesis that increased competition (whether product market, capital market, or regulatory competition) may have a greater ability to generate lasting changes in a country's legal environment to the benefit of investors and overall welfare.

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Law, Finance, and Path Dependence: Developing Strong Securities Markets

Using actions with both an SEC investigation and a class action as our baseline, we compare the targeting of SEC-only investigations with class action-only lawsuits. Looking at measures of information asymmetry, we find that investors in the market perceive greater information asymmetry following the public announcement of the underlying violation for class action-only lawsuits compared with SEC-only investigations. Turning to sanctions, we find that the incidence of top officer resignation is greater for class action-only lawsuits relative to SEC-only investigations. Our findings are consistent with the private enforcement targeting disclosure violations at least as precisely (if not more) than SEC enforcement.

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SEC Investigations and Securities Class Actions: An Empirical Comparison

We examine factors that might explain how sanctions imposed in Foreign Corrupt Practices Act (FCPA) enforcement actions vary across the firms and countries implicated using a data set of FCPA actions resolved from 2004 to 2011. We find evidence that the sanctions in an individual FCPA action are positively correlated with the egregiousness and extensiveness of the bribe. The sanctions also increase if the ultimate parent company of entities involved in the FCPA violation is foreign and if foreign regulators are involved in the action. At the country level, we report evidence that the SEC and DOJ impose greater aggregate sanctions for violations in countries with a lower GNI per capita and weaker local anti-bribery institutions. The SEC and DOJ also impose disproportionately greater aggregate sanctions for violations where the home country of the ultimate parent company of FCPA defendants has a greater GNI per capita, stronger anti-bribery institutions, and a cooperation agreement with U.S. regulators. Overall, these findings suggest that factors besides those deemed relevant by U.S. and international law influence enforcement of the FCPA.

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Foreign Affairs and Enforcement of the Foreign Corrupt Practices Act

When Congress enacted the Private Securities Litigation Reform Act in 1995 (“PSLRA”), the Act’s “lead plaintiff” provision was the centerpiece of its efforts to increase investor control over securities fraud class actions. The lead plaintiff provision alters the balance of power between investors and class counsel by creating a presumption that the investor with the largest financial stake in the case will serve as lead plaintiff. The lead plaintiff then chooses class counsel and, at least in theory, negotiates the terms of counsel’s compensation. Congress’s stated purpose in enacting the lead plaintiff provision was to encourage institutional investors—pension funds, mutual funds, hedge funds, etc.—to come forward to serve as lead plaintiff. The theory was that * William T. Comfort, III Professor of Law, New York University School of Law. I would like to thank Un Kyung Park for her helpful comments. ** Alpin J. Cameron Professor of Law and Director, Center for Corporate Securities and Financial Law, Fordham University School of Law. I am grateful for the helpful comments from the participants at the faculty workshop at Loyola University Chicago School of Law. *** Professor of Law, University of Michigan Law School. I would like to thank participants at the Fawley Lunch, University of Michigan Law School. All of the authors are grateful for the helpful comments provided by the participants in the April 2005 conference sponsored jointly by the Washington University School of Law and the Institute for Law and Economic Policy. Washington University Open Scholarship p 869 Choi Fisch Pritchard book pages.doc 4/20/2006 870 WASHINGTON UNIVERSITY LAW QUARTERLY [VOL. 83:869 an institutional investor with a substantial damages claim would have the incentive to bargain hard with class counsel on behalf of the class, reducing the percentage of the recovery awarded to class counsel. Congress also expected institutions to play an oversight role, monitoring to make sure that class counsel was vigorously pursuing claims on behalf of the class and not settling claims on the cheap. Our study offers evidence on the extent to which the lead plaintiff provision furthers these goals. We have collected two samples of securities class actions—one from 1991 to 1995 (pre-PSLRA) and one from 1996 to 2000 (post-PSLRA). We compare the class representatives from the two periods to determine if institutional investors are stepping forward in significantly greater numbers. We also sort the institutional investors— distinguishing public from private—to see what types of investors have stepped forward to serve as lead plaintiff. Consistent with other research, we find a significant difference only in the number of public institutions serving as lead plaintiff. Our sample also allows us to analyze the impact of the lead plaintiff provision: Does the presence of an institutional investor increase the likelihood of a high-value settlement? Despite the visible participation of institutions in several high-profile cases, we find no systematic evidence that private institutional lead plaintiffs are associated with larger class recoveries. Public pension fund lead plaintiffs, on the other hand, are correlated with higher class recoveries as a fraction of the potential damage award in the post-PSLRA period. Our results are, however, consistent with the possibility that public pensions “cherry-pick” the actions in which they seek to become lead plaintiff, selecting only the cases with the largest potential damages and the strongest evidence of fraud. Further analysis is needed to evaluate this possibility. We also evaluate the effect of lead plaintiffs on the selection of attorneys and attorneys’ fees. We find that, for the time period of our study, institutional investors tended to avoid the Milberg Weiss plaintiffs’ attorney firm. On the more fundamental issue of whether the presence of an institutional investor as a lead plaintiff reduces the fees paid to the lawyers, after controlling for the size of the case, we find no systematic evidence that institutional involvement correlates with lower fee awards. http://openscholarship.wustl.edu/law_lawreview/vol83/iss4/1 p 869 Choi Fisch Pritchard book pages.doc 4/20/2006 2005] DO INSTITUTIONS MATTER? 871

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Stephen J. Choi

Papers

The Supreme Court’s Impact on Securities Class Actions: An Empirical Assessment of Tellabs

Law, Finance, and Path Dependence: Developing Strong Securities Markets

SEC Investigations and Securities Class Actions: An Empirical Comparison

Foreign Affairs and Enforcement of the Foreign Corrupt Practices Act

Do Institutions Matter? The Impact of the Lead Plaintiff Provision of the Private Securities Litigation Reform Act