Trading when you cannot trade: Blackout periods in Italian firms

This paper is part of the general debate concerning corporate governance. It focuses on a mechanism of self-regulation geared at avoiding market abuses: the use of blackout periods during which insiders are temporarily prohibited from trading on the market. Data concerning corporate characteristics, blackout periods, and internal dealing, seem to indicate that companies with a large number of independent directors and a consistent ability to monitor are more likely to adopt blackout periods. However, the research shows that during 2003 insiders did not comply with Italy's Code of Best Practice; they did not totally refrain from trading during the assigned blackout periods. All three variables measuring frequency trading – the numbers of transactions carried out, of active insiders, and of shares traded – were statistically significant during the specified blackout periods. Therefore, this paper could have practical implications for policy makers. If they decide to adopt self-regulation to fight market abuses, they must be aware that a law is only as effective as its enforcement.     

Does court-supervised reorganization work? Evidence from post-confirmation firm failure

Unlike the US Chapter 11, the Belgian reorganization legislation requires that distressed firms remain temporarily under court-supervision during the post-confirmation stage. Using a hand-collected sample of firms, we analyze the likelihood of business failure and the time to failure during this period. Less viable firms are more likely to fail and do faster so, indicating relatively effective reorganization proceedings. Firms that are indebted to highly secured banks or owe high sums of unpaid taxes are more likely to fail. Judicial discretion affects the likelihood of failure only in a subsample of sole proprietorships.     

Does it pay to pollute? Shareholder wealth consequences of corporate environmental lawsuits

In this paper, we employ the event study methodology to examine shareholder wealth consequences of corporate environmental lawsuits filed in the US Circuit Courts from 1980 to 2001. We find that stocks of defendant firms experience significant negative abnormal returns around the lawsuit filing dates. When the plaintiffs are government entities, the abnormal returns of the defendant stocks are significantly negative. On the other hand, when the plaintiffs are individuals or nonpublic business entities, the abnormal returns are statistically insignificant. When lawsuits are filed under EPA's superfund statute, defendant firms experience significant loss in equity value. For shareholders of the average firm in our sample, the empirical evidence suggests that it does not pay to pollute if the firm is sued.     

Public markets, private orderings and corporate governance

In the New Property Rights approach the degree of incompleteness of markets is taken independently of the cost of the public ordering and of their efficiency relatively to private orderings. In this approach “public markets,” similarly to a Swiss cheese, are either assumed to be nonexistent empty holes (because of infinite third party verification costs) or assumed to be smooth and efficient (because of zero third party verification costs). When we allow for positive but not infinite third party verification costs we are necessarily pushed back to the insights of Commons, Coase, Fuller and Williamson. The degree of (in)completeness of public markets becomes an endogenous economic problem and managers can be seen as agents that make “second order” specific investments to run specific relations that cannot be efficiently handled by public markets. Managers and the public authorities build respectively private and public “legal equilibria” that set the working rules within which transactions can take place. Private and public legal equilibria are not only substitutes but also complements. This complementarity is an important source of the path dependency that characterizes the development of different legal systems. The framework is applied to GM’s acquisition of Fisher Body. We suggest that, contrary to the claims of the New property Rights approach, the advantages of the acquisition were not due to the superior incentives of the new private owners but should be rather related to the replacement of public markets by the new private ordering set up by Alfred Sloan.     

A unified model of settlement and trial expenditures: The Priest–Klein model extended

Settlement and trial expenditures are crucially interrelated. The literature on settlement, however, takes no account of models of trial. In this paper, we develop a unified model of settlement and trial expenditures. We do this by discarding the usual assumption of settlement models that trial costs are constant across cases. Instead, we follow the literature on trial by permitting trial costs to vary with the legal merit of the plaintiff's case. Our approach can be used to extend standard models of settlement such as the well-known Priest–Klein model as well as models based on asymmetric information. As a demonstration, we extend the Priest–Klein model and generally overturn that model's canonical results. In particular, we show that even in a fully symmetric model, predicted win rates at trial can deviate substantially from 50 percent. Furthermore, win rates will vary in response to legal reforms that shift the decision standard.     

Technology and torts: Memory costs, nondurable precautions and interference effects

This article examines the influence of nondurable precaution technologies on the expansion of tort awards. We provide four contributions to the literature. First, we present a general, formal model on durable and non-durable precaution technology that focuses on memory costs. Second, because liability exposure creates interference, we argue that tort law perpetuates the expansion of awards. Third, because plaintiffs do not consider the social costs of interference effects, private litigation induces socially excessive suits. Fourth, while new harm-reducing technologies likely increase accident rates, such technologies also raise the ratio of trial costs to harm, leaving undetermined the overall effect of new technologies on the rate of litigation.     

Cross-border Mergers and Acquisitions in different legal environments

The aim of this paper is to analyze the influence of the legal and institutional environment on bidder firm returns around the announcement date of cross-border Mergers and Acquisitions (M&As). The database includes 469 M&As of European (221 cross-border and 248 domestic) listed firms, with target firms being worldwide public or private firms (40 countries), over the 2002–2006 period.Shareholders of acquiring firms place greater value on cross-border M&A announcements than on domestic ones. The stronger (weaker) the legal and institutional environment of the acquirer firm country in comparison with that of the target firm country, the more positive (negative) the effect on acquiring-firm shareholders’ valuation of M&As.     

On the optimality of a duty-to-rescue rule and the cost of wrongful intervention

In common law legal systems, there is no legal duty to rescue persons in danger. By contrast in code-based legal systems, the principle of duty to rescue does apply. What is behind this difference? To answer this question, we develop a new model extending the reach and strength of the standard civic duty game by taking into account the cost of wrongful intervention. We use this model to analyze and compare three policy options: doing nothing, adopting a duty-to-rescue rule, and encouraging would-be rescuers. We show that a duty-to-rescue rule is more likely to be welfare enhancing when the cost of inappropriately intervening is low, and that, in certain cases, encouraging would-be rescuers is preferred by a representative citizen to both a duty-to-rescue rule and no-rule. Finally, we offer an explanation for the choices made in the USA and France as to whether to use rescue laws.     

Mating (marriage) patterns and economic development

This paper looks at the relationship between economic development and mating (marriage) patterns in the very long run. For this purpose we introduce the Goldin and the Kuznets curves which relate female labour and income inequality with economic development respectively. To some extent, the Goldin and the Kuznets curves have followed opposite paths, which in turn, could illustrate how economic development has had an impact on mating (marriage) patterns, and thus household formation. The likely convergence in mating patterns among hunter–gatherers across societies vanished after the Neolithic revolution. Then, African polygyny and the ‘European’ marriage pattern developed into the most significant exceptions to the traditional dictate of nature “…an early attachment to one woman” (Malthus, 1798: pp. 15). Nowadays, monogamy and late attachments have become the norm rather than an exception.     

Turning science into business in developing countries: the case of vaccine production in Vietnam

Turning scientific discoveries into business opportunities is a difficult process, particularly in high-tech related area such as bioscience and biotechnology. In developing countries, where research conditions are much less favorable than in the industrialized world, there are many additional constraints in terms of finance, investment, and human resources. However, the production of vaccines on the basis of research and technology transfer in Vietnam shows that this is possible provided the right policy and right people are available. Relying on transfer of technology from overseas, plus a combination of domestic efforts and international cooperation on R&D, Vietnamese research institutes have turned their research into business operations and turned some scientists into a businessmen and women. This in turn, has contributed to the eradication of certain diseases and Vietnam’s self-reliance of key vaccines.      

Screening markets for cartel detection: collusive markers in the CFD cartel-audit

Coordination Failure Diagnostics (CFD) is a model that analyses real market processes with the help of time pattern analysis and investigates whether they operate efficiently. For competition authorities CFD can be employed to detect illegal covert cartels. The CFD cartel-audit should enable the detection of cartels via characteristic market process patterns. This is based on the assumption that existing cartels cause failures in the observed process patterns. The CFD cartel-audit attempts to draw conclusions from these process patterns in order to find hidden cartels and to engage antitrust agencies into additional more detailed audits.

Proof of concept centers: accelerating the commercialization of university innovation

Innovation drives economic growth. Economic growth leads to longer, healthier lives by transforming yesterday’s luxuries into better, cheaper, and more efficient goods and services. University research is a key component of our nation’s innovative capacity. In an increasingly dynamic and global economy, the institutional infrastructure is inefficient at moving university innovations to the marketplace. University researchers often face convoluted procedures with insufficient guidance to commercialize their innovations. As angel investors and venture capitalists increasingly invest in later stage enterprises (See PricewaterhouseCoopers, and National Venture Capital Association. MoneyTree™ survey report. 2007. and VentureOne, “Venture Capital Industry Report.” DowJones 2006), researchers face difficulty finding early stage funding to develop and test prototypes and conduct market research. In order to fill this funding gap and accelerate the commercialization of university innovations, a new type of organization has emerged—the proof of concept center. An analysis of the Deshpande Center at MIT and the von Liebig Center at UCSD provides valuable insight into how proof of concept centers can facilitate the transfer of university innovations into commercial applications.

Reconsidering the southern Europe model: Dowry, women's work and marriage patterns in pre-industrial urban Italy (Turin, second half of the 18th century)

This paper aims to investigate and analyse the impact of the dowry and the endowment system on marriage and household patterns and on the labour market in 18th century Turin. At the same time it enquires into the reliability of the northern/southern Europe pattern for the study of this topic. Two points are developed. Firstly the paper shows that the dowry system coexists with a relatively high age at marriage because of the specific role played by the dowry in Turin society. Indeed, this was not a once-and-for-all established asset but was a negotiable and flexible resource that could be manipulated by the different actors concerned in the endowment. Moreover, the payment did not always take place immediately upon marriage, nor was the money quickly available. At the same time the paper examines the economic role of dowry in Ancien Régime households: by means of a juridical procedure couples could alienate this property, and use or invest it to ensure their well-being and/or their economic situation. Finally, the second part investigates the relationship between the dowry system and the participation of young girls and married women in the local labour market: their significant and crucial presence demonstrates that the dowry and its expectation was not a sufficient incentive to keep them out of the labour market.     

EU citizens: Challenging the notion of German National Political Community, 1990–2005

This article assesses the extent to which Germany's adaptation of European Union legal norms through altering the criteria for access to territory and rights has challenged the judicial and conceptual boundaries of its notion of national political community. It compares the policies that directly affected EU citizens’ and other immigrant groups’ access to German territory, citizenship and social integration programs. It may be seen that, in enjoying a unique and privileged position between Germans and the other foreigners, this group not only challenges and undermines the justification for this very distinction, but also transforms the concept of ‘otherness’.     

The delisting decision: The case of buyout offer with squeeze-out (BOSO)

In this paper, we exploit the specificity of going-private transactions that are initiated by the historic controlling shareholders (i.e. voluntary delistings). In Continental Europe, the majority of firms that become private do so following a buyout offer with squeeze-out (BOSO); using this mechanism, the controlling shareholder can cash out minorities and take the firm private. We argue that the decision to go private results from a cost–benefit analysis. Moreover, we pay particular attention to the consequences and the related costs of compliance resulting from the passage of the French Financial Security Law (FSL) in 2003. A quantitative study was performed using a unique dataset spanning 1997–2006. This data set consists of 140 French firms, of which 70 were voluntarily delisted via BOSO and 70 were industry-matched control firms. Univariate analysis and logistic regressions support the cost–benefit analysis: when listing benefits decrease because of weak liquidity and/or weak analyst coverage, it seems better for the firm to go private. Furthermore, the inherent characteristics of delisted firms (i.e. performance, leverage, and risk as measured by the beta factor) appear to be important driving factors of delisting. The passage of the FSL has strengthened the impact of these characteristics on the decision to go private. Mature firms that have weak performance and low specific risk and that are not financially constrained by debt will decide to go private because they cannot afford the listing status anymore. Finally, we show that the driving factors of delisting differ according to the identity of the controlling shareholder; specifically, the level of risk appears to be the strongest determinant for family firms, while non-family firms also consider their own financial structure.