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Corporate Law & Economic Performance

Aims & objectives

Reform of corporate law is currently being considered in several countries, including the UK where a Company Law Review has been initiated by the DTI and where two substantial Consultation Papers have been published by the Law Commission. A major focus of this process of reform is the link between company law and competitiveness. This in turn raises a number of questions on which empirical research has been, so far, comparatively limited. How far do the laws governing directors’ duties affect, in practice, the processes of corporate decision making? What are the mechanisms by which rules of company law take effect within organisations? What would the consequences be of a wider recognition for ‘stakeholder’ interests within the firm? How is the evolution of company law affected by transnational harmonisation and by increasing regulatory competition? How far are we observing international convergence around a ‘Anglo-American’ model of company law which stresses shareholder value at the expense of stakeholder-protection measures?

Methods

The main work of this project has consisted of an empirical study of the relationship between law and economic performance.  One part of the work, which was carried out by Beth Ahlering, John Armour and Simon Deakin, has involved cluster analyses on a number of legal and economic variables in different country systems; the identification of correlations among labour, shareholder and creditor protection variables; and a time series exploration of the relationship between legal change and economic outcomes over time.  Some of the results were presented at a seminar at Columbia University in April 2004 and were the subject of a working paper in the spring of 2005. Further working papers have been written. This work does a number of things. First, it considers the possibility of functional complementarities and substitutes in national legal systems, which serve to reinforce divergence and highlight the diversity of practice within and between countries. Second, it considers critically the validity of 'law on the books' as a sufficient indicator of the social, cultural and institutional environment surrounding corporate governance. Third, it undertakes a consideration of a number of relationships between legal origin and economic outcomes, emphasising that such a link is highly dependent on particular conceptual definitions of ‘efficiency’ and is subject to change depending on the type of sample and the time period being considered.  It is shown that legal origin is important, but does not operate in a linear way; it instead interacts with a range of other institutional processes, leading to a range of outcomes.

In addition, John Armour and Douglas Cumming have carried out work examining empirically the legal conditions for the growth of SMEs.  This has been published in a series of working papers. CBR WP 281, for example, compares the economic and legal determinants of venture capital investment, fundraising and exits. The paper introduces a cross-sectional and time series empirical analysis across 15 countries and 13 years of data spanning an entire business cycle. It shows that the legal environment matters as much as the strength of stock markets; that government programmes more often hinder than help the development of private equity, and that temperate bankruptcy laws stimulate entrepreneurial demand for venture capital. The results provide generalisable lessons for legal reform.

In related work, John Armour and Simon Deakin were part of a team which produced a report for the Financial Services Authority on the role of soft law and the 'comply and explain' approach within corporate governance codes, and the link between the codes and the Listing Rules drawn up by UK Listing Authority; Brian Cheffins, Riz Mokal and Richard Nolan carried out a number of theoretical and historical analyses of the link between law and economic performance; and Simon Deakin carried out consultancy work for the ILO on corporate governance and pensions law reform.

Books

Armour, J and Bennett, H. N. (2003) (eds) Vulnerable Transactions in Corporate Insolvency (Oxford: Hart Publishing).

Working papers

Ahlering, B. and Deakin, S.(2004) 'Corporate governance, labour regulation and legal origin: a case of institutional complementarity?', Mimeo.

Armour, J.  and Mokal, RJ (2004) ‘Reforming the Governance of Corporate Rescue: The Enterprise Act 2002’, CBR Working Paper No. 289.

Armour, J. and Cumming, D.(2004) 'The legal road to replicating Silicon Valley' CBR Working Paper 281.

Armour, J. (2003) 'Financing innovation: the role of insolvency law', mimeo.

Armour, J. and Mokal, R.(2003) 'Reforming the governance of corporate rescue' mimeo.

Armour, J. (2002) 'Law Innovation and Finance' CBR Working Paper 243.

Armour, J., Cheffins, B. and Skeel, D. A. Jr (2002) 'Corporate ownership structure and the evolution of bankruptcy law in the US and UK', CBR Working Paper 226.

Cheffins, B (2004) “Dividends and Politics”, European Corporate Governance Institute Law Working Paper No. 24/2004, UCLA School of Law Law/Econ Research Paper No. 04-17 (co-authored with Steve Bank and Marc Goergen)

Cheffins, B (2004) “Liability Risk for Outside Directors:  A Cross-Border Analysis”, University of Texas Law, Law and Economics Research Paper No. 27; Stanford Law and Economics Research Paper No. 285 (2004) (co-authored with Bernard S. Black and Michael Klausner) (to be published in European Financial Management).

Cheffins, B. (2003) 'Are good managers required for the separation of ownership and control?' CBR Working Paper 268.

Cheffins, B.(2000) Does law matter? The separation of ownership and control in the United Kingdom. CBR Working Paper 172.

Deakin, S. (2003) 'Interpreting employment contracts: judges, employers and workers', CBR Working Paper 267.

Cumming, D., Cosh,. AD and Hughes, A. (2004). ‘Outside Entrepreneurial Capital’, mimeo.

Cumming, D. (2004). ‘Private Investor Governance and Exit’, mimeo.

Cumming, D., and Johan, S. (2004a). ‘Is it the Law or the Lawyers? Investment Fund Covenants Across Countries’, mimeo.

Cumming, D., and Johan, S. (2004b). ‘Provincial Preferences in Private Equity’, mimeo.

Cumming, D., and Johan, S. (2004c). “Advice and Monitoring in Venture Finance”, mimeo.

Cumming, D., Fleming, G., and Schwienbacher, A. (2004a). ‘Liquidity Risk and Venture Finance’, mimeo.

Cumming, D., Fleming, G., and Schwienbacher, A. (2004b). ‘Style Drift in Private Equity’, mimeo.

Cumming, D., Fleming, G., and Schwienbacher, A. (2004c). ‘Financial Intermediaries, Ownership Structure and Monitored Finance: Evidence from Japan’, mimeo.

Cumming, D., Fleming, G., and Schwienbacher, A. (2004d). ‘Corporate Relocation in Venture Finance’, mimeo.

Cumming, D., and MacIntosh, J., (2004a). ‘Mutual Funds that Invest in Private Equity? An Analysis of Labour Sponsored Investment Funds’, mimeo.

Cumming, D., and MacIntosh, J. (2004b). ‘Crowding Out Private Equity: Canadian Evidence’, mimeo.

Cumming, D., and MacIntosh, J. (2004c). ‘Selection Effects, Corporate Law and Firm Value’, mimeo.

Cumming, D., Schmidt, D., and Walz, U. (2004). ‘Legality and Venture Governance Around the World’, mimeo.

Deakin, S.(2002) 'Evolution for our time: a theory of legal memetics', CBR Working Paper 242.

Deakin, S. (2000) Regulatory competition versus harmonisation in European company law. CBR Working Paper 163.

Mokal, RJ and Robin Dicker QC, Adam Goodison (2004) ‘Voluntary Arrangements (Companies)’ (10,000 words)

Mokal, RJ and Stephen Atherton (2004) ‘Charges over Chattels – Issues in the Fixed/Floating Jurisprudence’ (10,000 words

Mokal, RJ (2004) ‘Administrative Receivership and Administration – An Analysis’ (19,000 words)

Mokal, RJ (2004) ‘Liquidation Expenses and Floating Charges — The Separate Funds Fallacy’ (10,000 words)

Mokal, RJ (2004) ‘The Harm Done by Administrative Receivership’ (7,000 words)

Mokal, RJ and John Armour (2004) ‘The New UK Corporate Rescue Procedure — The Administrator’s Duty to Act Rationally’ (6,000 words)

Mokal, R. (2003) 'Administrative receivership and administration - an analysis' mimeo.

Nolan, R. (2003) 'Property in a fund', mimeo.

Book chapters

Armour, J and Rizwaan Jameel Mokal (2004) ‘La Disciplina Concorsuale Inglese’ in Sido Bonfatii and Giovanni Falconne, La Legislazione Concorsuale in Europa (Milano: Dott. A. Giuffrè Editore, 2004).

Armour, J. (2003) ‘Law, finance and innovation’ in McCahery, J. and Renneboog, L. (eds.) Venture Capital and Financial Systems (Oxford: OUP).

Armour, J. (2003) ‘Fraud on creditors at common law’ in Armour, J and Bennett, HN. (eds.) Vulnerable Transactions in Corporate Insolvency (Oxford: Hart Publishing).

Armour, J. (2003) ‘Transactions at an undervalue’ in Armour, J and Bennett, HN. (eds.) Vulnerable Transactions in Corporate Insolvency (Oxford: Hart Publishing).

Armour, J. (2003) 'Fraud on creditors at common law' in J. Armour & H.N. Bennett (eds.) Vulnerable Transactions in Corporate Insolvency (Oxford: Hart Publishing).

Armour, J. (2003) 'Transactions at an undervalue' in J. Armour & H.N. Bennett (eds.), Vulnerable Transactions in Corporate Insolvency (Oxford: Hart Publishing).

Armour, J. (2003) 'Transactions defrauding creditors' in J. Armour & H.N. Bennett (eds.), Vulnerable Transactions in Corporate Insolvency (Oxford: Hart Publishing).

Armour, J. (2003) 'Law, finance and innovation' in McCahery, J. & Renneboog, L. (eds) Venture Capital and Financial Systems (Oxford: OUP).

Armour, J. and Whincop, M. (2003) 'An economic analysis of shared property in partnership and close corporations law', in McCahery, J. and Vermeulen, E. (eds.) Close Corporation and Partnership Reform in Europe and the United States (Oxford: OUP).

Barnard, C. and Deakin, S. (2002) 'Corporate governance, European governance, and social rights', in Hepple, B. (ed.) Social and Labour Rights in a Global Context. Cambridge: CUP, 122-150.

Cumming, D., and MacIntosh, J. (2004a). ‘Comparative Venture Capital Governance: Private Versus Labour-Sponsored Funds’in V. Kanniainen and C. Keuschnigg, eds. Venture Capital, Entrepreneurship and Public Policy (MIT Press, forthcoming).

Cumming, D., and MacIntosh, J. (2004b) ‘The Extent of Venture Capital Exits: Evidence from Canada and the United States’ in L.D.R. Renneboog and J. McCahery, eds., Venture Capital Contracting and the Valuation of High Technology Firms (Oxford University Press), Chapter 15.

Cumming, D., and MacIntosh, J. (2004c). ‘Canadian Labor-Sponsored Venture Capital Corporations: Bane or Boon?’ in A. Ginsberg and I. Hasan, eds., New Venture Investment: Choices and Consequences (Elsevier Science Academic Press), pages 169-200.

Cumming, D., and MacIntosh, J. (2004d forthcoming). ‘Law, Finance and the Canadian Venture Capital Cycle’ in C. Waddell, ed. Financial Services and Public Policy (McGill Queen’s University Press).

Cheffins, B. (2001) 'Putting Britain on the Roe map: the emergence of the Berle-Means corporation in the United Kingdom', in McCahery, J. and Renneboog, L. (eds.) Convergence and Diversity in Corporate Governance Regimes and Capital Markets (Oxford: OUP).

Deakin, S. (2003) 'Interpreting employment contracts: judges, employers and workers', in Worthington, S. (ed.), Commercial Law and Commercial Practice (Oxford: Hart, 2003), 433-455.

Mokal, R. (2003) 'The floating charge - an elegy', in Worthington, S. (ed.), Commercial Law and Commercial Practice (Oxford: Hart), pp. 479-509.

Journal articles

Armour, J (2004)  ‘Personal Insolvency Law and the Demand for Venture Capital’ 5 European Business Organization Law Review 87-118.

Armour, J. (2004) ‘Corporate Opportunities: If in Doubt, Disclose. (But How?)’ 63 Cambridge Law Journal 33-36.

Armour, J. and Mokal, RJ (2004)  ‘The New UK Corporate Rescue Procedure—The Administrator’s Duty to Act Rationally’ 1 International Corporate Rescue 136-142.

Armour, J (2004) ‘Floating Charges: All Adrift?’ (2004) 63 Cambridge Law Journal 560-564.

Armour, J (2004) ‘The Chequered History of the Floating Charge’ 13 Griffith Law Review 27-57.

Armour, J. (2003) 'Financial assistance: a restatement' Cambridge Law Journal 62: 266-269

Armour, J. and McCahery, J.(2003) 'Improving corporate law and the modernization of securities regulation in Europe' Journal of Corporate Law Studies 3: 211-220.

Armour, J., Cheffins, B. and Skeel, D.A. Jr. (2002) 'Corporate ownership structure and the evolution of bankruptcy law: lessons from the UK' forthcoming Vanderbilt Law Review 55: 101-188.

Armour, J. and Whincop, M. (2001) 'An economic analysis of shared property in partnership and close corporations law' Journal of Corporation Law 26: 101-118.

Barnard, C. and Deakin, S. (2002) '"Negative and positive harmonisation of labor law in the European Union' Columbia Journal of European Law 8(3): 389-413.

Barnard, C. and Deakin, S. (2002) 'Reinventing the European corporation? Corporate governance, social policy and the single market' Industrial Relations Journal 33: 482-497.

Campbell, N. and Armour, J. (2003) 'Demystifying corporate civil liability', Cambridge Law Journal 62: 290-303.

Cheffins, B (2005 forthcoming) “Are Good Managers Required for a Separation of Ownership and Control?”, Industrial and Corporate Change.

Cheffins, B (2005 forthcoming) “Outside Directors and Lawsuits:  What are the Real Risks?”, McKinsey Quarterly (co-authored with Bernard Black and Michael Klausner).

Chefffins, B., Bernard S. Black and Michael Klausner (2004 forthcoming) “Liability Risk for Outside Directors:  A Cross-Border Analysis”, to be published in European Financial Management.

Cheffins, B (2004) “Mergers and the Evolution of Patterns of Corporate Ownership and Control:  The British Experience”, Business History 46:  256-84.

Cheffins, B. (2001) 'Corporate law and the separation of ownership and control' (Il diritto societario e la separazione di proprieta' e controllo) Banca impresa societa 20: 181-197.

Cheffins, B. (2001) 'History and the global corporate governance revolution: The British perspective' Business History 43: 87-118.

Cheffins, B. (2001) 'The metamorphosis of Germany Inc.: the case of executive pay' American Journal of Comparative Law 49: 497-539.

Cheffins, B. and Thomas, R. (2001) 'Should shareholders have a greater say over executive pay?: Learning from the US experience' Journal of Corporate Law Studies 1: 277-315.

Cheffins, B. (2001) 'Does law matter? The separation of ownership and control in the United Kingdom' Journal of Legal Studies, 30: 459-84.

Cheffins, B. (2001) 'Law, economics, and the UK's system of corporate governance: lessons from history' Journal of Corporate Law Studies 1: 71-89.

Cumming, D., (2004a forthcoming). ‘The Determinants of Venture Capital Portfolio Size: Empirical Evidence’ Journal of Business.

Cumming, D. (2004b forthcoming). ‘Adverse Selection and Capital Structure: Evidence from Venture Capital’ Entrepreneurship Theory and Practice, forthcoming.  (Conditional acceptance subject to some revisions).

Cumming, D. (2004c forthcoming). ‘A Review of Global Venture Capital Transactions’ Venture Capital: An International Journal of Entrepreneurial Finance.

Cumming, D. (2004d forthcoming). ‘Agency Costs, Institutions, Learning and Taxation in Venture Capital Contracting’ Journal of Business Venturing.

Cumming, D. (2004e forthcoming). ‘Capital Structure in Venture Finance’ Journal of Corporate Finance.

Cumming, D., Fleming, G., Schwienbacher, A. (2004f forthcoming). “Legality and Venture Capital Exits” Journal of Corporate Finance.

Cumming, D., Fleming, G., Suchard, J. (2004g forthcoming). ‘Venture Capitalist Value Added Activities, Fundraising and Drawdowns’ Journal of Banking and Finance.

Cumming, D., and MacIntosh, J. (2004h forthcoming). ‘Boom, Bust and Litigation in Venture Capital Finance’ Willamette Law Review 40.

Deakin, S. (2005) ‘The coming transformation of shareholder  value’ Corporate Governance: An International Review, 13: 11-18.

Deakin, S. (2003) 'Evolution for our time: a theory of legal memetics' Current Legal Problems 55: 1-42.

Deakin, S. (1999) 'Two types of regulatory competition: competitive federalism versus reflexive harmonisation. A law and economics perspective on Centros'. Cambridge Yearbook of European Legal Studies 2: 231-260.

Mokal, RJ (2004) ‘The Harm Done by Administrative Receivership’ (2004) 1(5) International Corporate Rescue 248-25.

Mokal, RJ and John Armour, (2004)’The New UK Corporate Rescue Procedure — The Administrator’s Duty to Act Rationally’ 1(3) International Corporate Rescue 136-142.

Mokal, RJ (2004) ‘Interplay of Administration, Liquidation, and CVA – Part II’ (2004) 25(2) Company Lawyer 35-40.

Mokal, RJ and Look Chan Ho (2004) ‘Interplay of Administration, Liquidation, and CVA – Part I’ (2004) 25(1) Company Lawyer 3-8.

Mokal, R. (2002) 'On fairness and efficiency' Modern Law Review 66: 452-467.

Nolan, RC (2005 forthcoming) "The Legal Control of Directors’ Conflicts of Interest in the United Kingdom: Non-Executive Directors Following the Higgs Report" Theoretical Inquiries in the Law.

Other publications

Armour, J., Bates J., Deakin, S. and Whincop M. (2003) Corporate Governance via the Listing Rules, Report to the UK Listing Authority, February 2003, mimeo.

Armour, J. (2003) Review of Mark Roe, Political Foundations of Ownership and Control (Oxford University Press, 2003) European Business Organization Law Review 171-176.

Armour, J. (2002) Review of Michael J. Whincop, An Economic and Jurisprudential Genealogy of Corporate Law (Ashgate, 2001) [2002] 61 Cambridge Law Journal 467-469.

Armour, J. (2002) Review of Paul Davies, Introduction to Company Law (Clarendon Press, 2002) (2002) 2 Journal of Corporate Law Studies 367-371.

28 April 2004: How changes to the law will help demand for venture capital

8 March 2002: How does law matter for venture capital finance?

Project leaders

John Armour
Simon Deakin
Alan Hughes

Research associates

Brian R. Cheffins
Riz Mokal
Richard Nolan
Doug Cummings

Project status

Completed