Monthly Archives: January 2020

Weekly Roundup: December 27, 2019-January 3, 2020

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This roundup contains a collection of the posts published on the Forum during the week of December 27, 2019-January 3, 2020.

Institutional Trading around Corporate News: Evidence from Textual Analysis

SEC Proposes to Expand Definition of “Accredited Investor”

Managerial Control Benefits and Takeover Market Efficiency

Public Company vs. JV Governance

New Considerations for Special Litigation Committees

Worker Representation on U.S. Corporate Boards

Board-Shareholder Engagement Practices

Institutional Investment Mandates: Anchors for Long-term Performance

A New Dataset of Historical States of Incorporation of U.S. Stocks 1994-2019

Statement by Chairman Clayton on the Role of Audit Committees in Financial Reporting and Oversight Responsibilities

Jay Clayton is Chairman of the U.S. Securities and Exchange Commission. This post is based on a recent public statement by Chairman Clayton; Sagar Teotia; and William H. Himan, available here. The views expressed in this post are those of Messrs. Clayton, Teotia, and Hinman, and do not necessarily reflect those of the Securities and Exchange Commission or its staff.

Introduction [1]

The strength of our public company financial reporting system relies on many stakeholders playing different but interconnected roles in a process designed to provide investors and our markets with high-quality, reliable financial information. Audit committees play a vital role in the financial reporting system through their oversight of financial reporting, including the internal control over financial reporting (ICFR) and the external, independent audit process. [2]

In 2002, the Sarbanes-Oxley Act [3] introduced a number of requirements to increase and strengthen the role of audit committees in financial reporting, including the independent audit committee requirement. We believe the measures related to audit committees have proven to be some of the most effective financial reporting enhancements included in the Sarbanes-Oxley Act. [4] Effective oversight by strong, active, knowledgeable and independent audit committees significantly furthers the collective goal of providing high-quality, reliable financial information to investors and our markets.


A New Dataset of Historical States of Incorporation of U.S. Stocks 1994-2019

Holger Spamann is the Lawrence R. Grove Professor of Law at Harvard Law School and Colby Wilkinson is an Empirical Research Associate at Harvard Law School. Related research from the Program on Corporate Governance includes Firms’ Decisions Where to Incorporate by Lucian Bebchuk and Alma Cohen.

To learn about the effects of (state) corporate law, researchers often compare the performance of firms incorporated in different states. An obvious requirement for such comparisons is to know where firms are incorporated, or more to the point, where they were incorporated at the moment of the comparison (“historical state of incorporation”). Unfortunately, identifying the historical state of incorporation is not reliably possible with standard data sources. In particular, Compustat/CRSP contains the state of incorporation only as a so-called header variable, meaning the variable is part of the stock’s identifying information that constantly updates and hence only reflects the most recent state of incorporation. The problem is that firms may change their state of incorporation. A researcher downloading the data in 2019 could not be sure that a firm listed as incorporated in state X was also incorporated in state X in 1998 or even in 2018. The WRDS SEC Analytics Suite extracts historical state of incorporation data from the SEC’s Edgar system, but it is such a premium product that not even Harvard presently subscribes to it.


NYSE Proposal for Primary Direct Listings

Cydney S. Posner is special counsel at Cooley LLP. This post is based on a Cooley memorandum by Ms. Posner.

In late November, the NYSE filed with the SEC a proposed rule change that would have allowed companies going public to raise capital through a primary direct listing. Under current NYSE rules, only secondary sales are permitted in a direct listing. As a result, thus far, companies that have embarked on direct listings have been more of the unicorn variety, where the company was not necessarily in need of additional capital. The new proposal looked like it could be a game changer for the traditional underwritten IPO. (See this PubCo post.) But then, as reported by CNBC and Reuters, a little over a week later, the SEC rejected the NYSE’s proposal, and it was removed from the NYSE website, causing a lot of speculation about the nature of the SEC’s objection and whether the proposal could be resurrected. At the time, an NYSE spokesperson confirmed to CNBC that the proposal had been rejected, but said that the NYSE remained “‘committed to evolving the direct listing product…This sort of action is not unusual in the filing process and we will continue to work with the SEC on this initiative.’” (See this PubCo post.) Apparently, the NYSE meant what it said: the proposal was just refiled with some clarifications and corrections, and then, on Friday afternoon, the NYSE filed an amendment to the refiled proposal, which supersedes the earlier filing in its entirety. So now we’re back at the starting gate.


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