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This chapter reviews the empirical literature, especially the event study literature, as it relates to corporate and securities law. Event studies are among the most successful uses of econometrics in policy analysis.
By providing an anchor for measuring the impact of events on investor wealth, the methodology offers a fruitful means for evaluating the welfare implications of private and government actions. This chapter begins by briefly reviewing the event study methodology and its strengths and limitations for policy analysis. It then discusses one of the limitations of more conventional empirical work (cross-sectional analysis), the problem presented by the fact that the characteristics of firms that are studied in relation to each other (such as ownership and mechanisms of corporate governance) or to firm performance are not exogenous but self-selected by firms.
Thereafter it reviews in detail how event studies have been used to evaluate the wealth effects of corporate litigation. Subsequently, we focus on the methodology's application to corporate law and corporate governance issues, supplemented with discussion of other relevant empirical work as well. Event studies are emphasized because they have played an important role in the making of corporate law and in applied corporate finance and corporate law scholarship. The reason for this input is twofold. First, there is a match between the methodology and subject matter: the goal of corporate law is to increase shareholder wealth and event studies provide a metric for measurement of the impact upon stock prices of policy decisions. Second, because the participants in corporate law debates share the objective of corporate law, to adopt policies that enhance shareholder wealth, their disagreements are over the means to achieve that end. A further reason for emphasizing event study data is that they avoid the endogeneity concerns that can limit the results of other modes of empirical research in this area. Because the empirical literature related to corporate and securities law is vast, the chapter is necessarily selective and omits important topics and individual contributions in the field.
In the wake of the 2008 Global Financial Crisis, the UK created the first stewardship code which was designed to transform its rationally passive institutional investors into actively engaged shareholders. In the UK corporate governance context,...Read more
Since the UK adopted the world’s first stewardship code in 2010, stewardship codes have proliferated across Asia. Given the UK Code’s prominence, it is tempting to assume that every other stewardship code preforms the same function as the UK Code...Read more
By the end of the twentieth century, the then-dominant literature on “law and finance” assumed that concentrated ownership was a product of deficient legal systems that did not sufficiently protect outside investors. At the same time,...Read more
We are witnessing a quiet but quick transformation of corporate governance. The rise of digital technologies and social media are forcing companies to reconsider how they organize themselves and structure firm governance.
What is...Read more