Many managers receive company stock as compensation and then pledge that stock as collateral for personal loans. The practice is increasingly common, and its potential economic impact is anything but negligible. For example, Larcker and Tayan (2010) document that pledged shares by 982 directors in 2006-2009 averaged 44 percent of the total shares received as compensation. In addition, the damage to firm value from managers’ failure to meet margin calls can be significant, as shown…

The CLS Blue Sky Blog

Davis Polk Discusses M&A Impact of Changes to Loss Carryforwards

By Michael Mollerus William Curran & David Schnabel on September 17, 2019

On September 9, 2019, the Internal Revenue Service (“IRS”) released proposed regulations (the “Proposed Regulations”) that, if finalized in their current form, would in many cases dramatically reduce the portion of a company’s net operating loss (“NOL”) carryforward that is available to be used following a so-called ownership change of the company. The Proposed Regulations would be effective for ownership changes occurring after they are finalized. The Proposed Regulations would make other significant changes potentially…

The CLS Blue Sky Blog

Does Mandatory Disclosure for Private Firms Increase Their Chances of Going Public?

By Cyrus Aghamolla & Richard T. Thakor on September 16, 2019

How do disclosure requirements influence a private firm’s decision to go public? This is an important question for regulators and corporate finance professionals, given current debate about how much information private firms should have to disclose. Conceptually, public disclosure requirements for private firms can lead to greater exposure of the firm’s confidential and proprietary information. Keeping this information out of the hands of competitors is a major factor that pushes firms to stay private. However,…

The CLS Blue Sky Blog

The Rise of the Mega-Law Firm: Some Reckless Reflections and Prickly Predictions

By John C. Coffee Jr. on September 16, 2019

This post comes to us from John C. Coffee, Jr., the Adolf A. Berle Professor of Law at Columbia University Law School and the Director of its Center on Corporate Governance. These slides accompanied a lunch address that he gave at a Conference, entitled “Law Firms in the 21st Century,” which was held at Columbia on September 14, 2019. …

The CLS Blue Sky Blog

What Comes After Shareholder Primacy? Employee Empowerment

By Grant Hayden & Matthew Bodie on September 15, 2019

In corporate law, the U.S. academic elite stubbornly clings to shareholder primacy as the foundational principle of the field. The concept is simple, even elegant: Shareholders should be given ultimate control of the corporation because they are entitled to the residual – the leftover profits after all other contractual constituents have been paid – and they therefore have the proper incentives to maximize the overall value of the firm. At an earlier time, shareholder primacy…

The CLS Blue Sky Blog

Cleary Gottlieb Discusses U.S. CLOUD Act’s Possible Impact on EU Data Protection

By Natascha Gerlach & Elisabeth Macher on September 15, 2019

Responding to a request by the European Parliament’s Committee on Civil Liberties, Justice and Home Affairs (LIBE), the EU’s data protection supervisory bodies released an initial joint opinion on the impact of the U.S. Clarifying Lawful Overseas Use of Data Act (“CLOUD Act”) on the EU data protection framework. The preliminary assessment by the European Data Protection Supervisor (“EDPS”) and European Data Protection Board (“EDPB”) leaves service providers facing a familiar dilemma. Although the CLOUD…

The CLS Blue Sky Blog

Do Credit Rating Agencies Detect Accounting Frauds?

By Allen Huang Pepa Kraft & Shiheng Wang on September 12, 2019

Accounting fraud imposes severe costs on firms and their stakeholders. Firms at which fraud occurs often have inefficient resource allocation and face higher cost of capital and regulatory penalties. While shareholders suffer the brunt of these damages, frauds can also affect debtholders when firms miss contractual payments or declare bankruptcy. Credit rating agencies traditionally act as gatekeepers for debtholders, but their role and responsibility in detecting accounting fraud remain an open question. On the one…

The CLS Blue Sky Blog

Does Reporting Frequency Affect the Allocation of Investor Attention Among Peer Firms?

By Emmanuel T. De George Minh Phan & Robert C. Stoumbos on September 11, 2019

The frequency at which public companies must report financial information to investors has been the subject of intense debate in the European Union, Asia, and more recently the United States. For example, the Securities and Exchange Commission (SEC) is examining the pros and cons of giving U.S. companies the flexibility to report on a semi-annual basis (SEC, 2018). While previous studies have espoused the benefits of more frequent quarterly reporting in reducing information asymmetry and…

The CLS Blue Sky Blog

Gibson Dunn Discusses Volcker Rule Revisions

By Arthur S. Long on September 11, 2019

Since it was enacted in July 2010, the Dodd-Frank Act’s Volcker Rule has challenged banks and their regulators alike. This is particularly the case with respect to its restrictions on proprietary trading. It has been one thing for former Federal Reserve Chairman Volcker to state that “you know it when you see it,” quite another to formulate a regulation that accurately defines proprietary trading and implements a broad statutory directive across complex business operations. On…

The CLS Blue Sky Blog

Regulating Financial Guarantors: Abstraction Bias as a Cause of Excessive Risk-taking

By Steven L. Schwarcz on September 10, 2019

Since the 2008-2009 financial crisis, scholars, regulators, and policymakers have engaged in extensive studies to try to control excessive risk-taking by systemically important financial firms. In a recent article, available here, I argue that those studies do not fully explain the unusually excessive risks taken by financial firms as insurers of bonds and other debt securities, as sellers of protection under derivatives known as credit-default swaps (“CDS”), as providers of credit enhancement in securitization…

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Do Anti-Pledging Policies Have Unintended Consequences for Corporate Governance?

Davis Polk Discusses M&A Impact of Changes to Loss Carryforwards

Does Mandatory Disclosure for Private Firms Increase Their Chances of Going Public?

The Rise of the Mega-Law Firm: Some Reckless Reflections and Prickly Predictions

What Comes After Shareholder Primacy? Employee Empowerment

Cleary Gottlieb Discusses U.S. CLOUD Act’s Possible Impact on EU Data Protection

Do Credit Rating Agencies Detect Accounting Frauds?

Does Reporting Frequency Affect the Allocation of Investor Attention Among Peer Firms?

Gibson Dunn Discusses Volcker Rule Revisions

Regulating Financial Guarantors: Abstraction Bias as a Cause of Excessive Risk-taking

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