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April 24, 2013
Wei Jiang, Columbia University Graduate School of Business
Discussion Topic: "The Real Effects of Hedge Fund Activisim: Productivity, Asset Allocation, and Product Market Competition" (Authored with Alon Brav and Hyunseob Kim)
This paper studies the long-term effect of hedge fund activism on the productivity of target firms using plant-level information from the U.S. Census Bureau. A typical target firm improves its production efficiency by about 10% of a standard deviation within three years after the intervention, and this improvement is concentrated in industries with low product market concentration. By following plants that were sold post-intervention we also find that efficient capital redeployment is an important channel via which activists create value. Additional tests refute alternative explanations that attribute the improvement to self-cure, management’s voluntary reform, industry consolidation shocks, and hedge funds’ stock picking. The overall evidence suggests a real long-term effect of hedge fund intervention on target firms’ fundamentals
For a pdf of the paper, click here.
March 6, 2013
Alan D. Morrison, Said Business School, University of Oxford
Discussion Topic: "Trust, Reputation and Law: The Evolution of Commitment in Investment Banking" (Authored with William J. Wilhelm)
Social orderings rely upon the ability of individuals to make extended commitments to one another. A complex legal architecture exists to support commitments, but many important relationships continue to rely upon extra-legal modes of commitment. The situation of a relationship on the commitment hierarchy reflects the social, legal, and technological context in which it arises. Changes to any of these factors alter commitment choices and, hence, the social ordering that emerges from them. In extremis, such changes can cause significant social dislocations. Investment banks have experienced such a dislocation, and its effects are still playing out.
For a pdf of the paper, click here.
February 27, 2013
Jeffrey Gordon, Richard Paul Richman Professor of Law; Co-Director, Richman Center for Business, Law & Public Policy and Co-director, Center for Law and Economic Studies
Patrick Boulton, Barbara and David Zalaznick Professor of Business, Columbia University Graduate School of Business
Discussion Topic: "How the Fed's recent practice of "stress tests" for systemically important firms is designed to overcome the uncertainty in the future economic environment."
Financial firms have been subject to series of stability-promoting requirements for stability, especially "capital" requirements, but these are static and perhaps backwards looking. Is it possible to avoid regulatory arbitrage around those fixed standards and the inherent uncertainty of the economic environment through forward-looking scenario testing in "stressed" environments?
For a pdf of the first half of the paper, click here.
For a pdf of the second half of the paper, click here.
February 13, 2013
Katharina Pistor, Michael I. Sovern, Professor of Law, Columbia University Law School
Discussion Topic: This is to announce two Blue Sky Lunches on the theme of "uncertainty." The first is this coming Wednesday, Feb. 13th. The second is Wednesday, Feb. 27th. The goal is to discuss work that from our different perspectives address the problem of uncertainty - how particular public institutions (regulation and administrative structures) or private institutions (contract) can manage these problems.
At the first of these sessions, Katharina Pistor will analyze the law-finance paradox, which holds that while law is critical for making commitments credible, under conditions of uncertainty and volatile liquidity, the enforcement of all ex ante commitments irrespective of changes in circumstances can trigger the self-destruction of the system. At the second, Feb. 27, Patrick Bolton and Jeff Gordon will discuss how ex post strategies like "stress tests" can address some of the shortfalls of ex ante rules and backward looking modeling strategies to avoid of systemic distress. Both of these projects look to the financial crisis as presenting problems of "uncertainty" in regulatory design and implementation, but the goal is bring in perspectives from different fields, public law and private. The thought is that our different projects could benefit from this common discussion. Maybe we'll find we have a common agenda that warrants some self-conscious development. If the "uncertainty" theme resonates, we can schedule other BSL's for discussion of other work.
For a pdf of the paper, click here.
February 4, 2013
Pierre-Henri Conac, Professor, Dr. - LLM (Columbia Law School) University of Luxembourg; Member of the Securities and Markets Stakeholder Group (SMSG) of the European Securities and Markets Authority (ESMA)
Discussion Topic: "A Briefing on recent European securities law development - Is European Securities Legislation Now Similar to US Securities Legislation?"
Since the 2007 financial crisis, the European legislator has been very active to develop new directives and regulations in the area of securities law. A similar development occurred in the US which culminated with the adoption of the Dodd-Frank Act of 2010. Traditionally, European securities legislation has been heavily influenced by US securities law. At first glance, the recent developments in Europe look spectacular both as to the content and as to the harmonization of European securities legislation. Europe seems to be moving much closer to the US. However, this is trend is still incomplete.
As to the content, the European legislation on enforcement (Market Abuse Directive of 2003) is undergoing a significant upheaval which includes forcing Member States to introduce criminal sanctions for insider trading. In addition, the level of administrative sanctions is going to be significantly increased and administrative sanctions will now have to be published automatically, save exceptional circumstances. Therefore, Europe is moving much closer to the stronger enforcement approach which is traditional in the US, even if the recent SEC track record is subject to debate. However, major legal differences still remain between Europe and the US and the level of effective enforcement remains highly variable between Member States themselves.
As to the level of harmonization, Europe is on its way to adopt a « Single rule book » which implies a full harmonization in the 27 Member states of all securities legislation originating from Brussels. Before 2007, Member States had a lot of freedom to introduce variations from the European legislation. This is very close to a « federalization » of European securities law. Also, like in the US, when Congress established the Securities and Exchange Commission (SEC) to enforce the Securities Act and the Exchange Act, the European legislator established in 2011 an EU wide regulator, the European Securities and Markets Authority (ESMA) to help draft the Single rule book and to make sure that European securities law is applied in an identical way in the 27 Member States. However, the development of the single rule book is proving difficult because of opposition of various Member States and lobbying efforts at the European Parliament. As to ESMA, which is made up of national securities regulators, it has limited powers.
October 1, 2012
Charles M. Elson, Edgar S. Woolard, Jr. Chair in Corporate Governance and Director of John L. Weinberg Center for Corporate Governance, Director, HealthSouth Corp. University of Delaware, Alfred Lerner College of Business & Economics
Discussion Topic: "Executive Superstars, Peer Groups, and Over-Compensation - Cause, Effect, and Solutions"
The dramatic rise in CEO compensation over the past three decades has resulted in tremendous popular and shareholder discord. Two distinct theories have long framed the analysis of this disconcerting trend. The first emphasizes board dynamics, alleging that management-dominated passive boards have allowed powerful executives to extract rent in the form of excessive compensation or perks at the expense of shareholders. The second describes the operation of an efficient market for scarce and valuable executive talent. The level of pay among executives is then an unavoidable consequence of exogenous market forces and necessary for the retention of rare and able managers. In essence, the theories describe the capture of boards by overbearing management in the former, and by omnipotent markets in the latter. However, the cause of the escalation in pay, as we argue in this paper, is not fully susceptible to either explanation.
The theory of management capture, vis-à-vis compensation, argues that the directors of large public companies allow rent-seeking executives to exert an outsized influence over the compensation negotiation process. Directors are inhibited from engaging in effective and autonomous oversight because of significant personal and professional connections with the management and a lack of meaningful incentive to do so. It was argued that executive compensation escalated unchecked, because boards failed to negotiate rigorously with executives. But, calls for reform in the early 1990s from scholarly, professional, and popular commentators, and a concerted effort by institutional investors, regulatory agencies, and the Delaware judiciary led to the reformation of modern corporate boards. They called for equity holding, independent directors, and open elections. It was believed that these reforms would serve as a mechanism for improving board performance and corporate accountability while concomitantly remedying the executive compensation conundrum.
For a pdf of the paper, click here.
September 19, 2012
Anthony GB Pullinger, Deputy Director General, The British Takeover Panel
Discussion Topic: "Overview of the London Takeover Panel"
In the UK, the Takeover Panel, a principles-based regulator, maintains high standards of business conduct, investor protection and market integrity during transactions involving the control of public corporations. What makes it tick, is its model exportable and do its recent moves to assist target corporations presage a change of emphasis?
For a pdf of the presentation, click here.
Jesse Greene, Richman Senior Fellow, will speak at "U.S. Cybercrime 2014: Understanding Today's Changing Threat Landscape," organized by Sandpiper Partners, LLC at the Yale Club in New York
In the Media
February 15, 2014Bruce Raynor and Richman Center Senior Fellow Andrew Stern offers perspective on the future of of the Democratic party in The Washington Post
January 23, 2014The Washington Post interviews Christopher Mayer, Co-Director of the Richman Center on the progress of the government’s Home Affordable Refinance Program
January 2, 2014The Washington Post interviews Christopher Mayer, Co-Director of the Richman Center on the progress of the government’s Home Affordable Refinance Program
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