Competing Views on the Economic Structure of Corporate Law

Lucian Bebchuk is the James Barr Ames Professor of Law, Economics, and Finance, and Director of the Program on Corporate Governance, at Harvard Law School. This post is based on his recent paper.

I recently placed on SSRN a new essay, Competing Views on the Economic Structure of Corporate Law.

This essay was written for the symposium issue of the University of Chicago Business Law Review celebrating the thirty-year anniversary of the publication of The Economic Structure of Corporate Law by Frank Easterbrook and Daniel Fischel (“E&F”). The essay discusses how my research in the economics of corporate governance over the years has engaged with E&F’s analyses, and our different approaches to the subject.

During the four decades since the E&F writings started to appear, my work has largely focused on the economics of corporate governance. In the course of this work, I paid significant attention to E&F’s writings. Indeed, a significant part of my research in the economics of corporate governance focused on issues also considered by E&F, engaged with their positions, and developed approaches different from theirs. The essay discusses these points in the context of five areas of corporate research that both E&F and I examined, offering substantially different conclusions:

Takeover policy and rules: I discuss E&F’s focus on the facilitation of hostile bids to the fullest extent possible, and I contrast it with my analysis of the benefits of takeover regulation that facilitates competing bids and ensures an undistorted choice for target shareholders.

Contractual freedom in corporate law: I discuss E&F contractarian approach, and I contrast it with my analysis of contractual imperfections and the role of mandatory rules in corporate law.

State competition in corporate law: I discuss E&F’s support for state competition in corporate law, and I contrast it with my analysis of the shortcoming of such competition and the beneficial role of federal law.

Efficiency and distribution in corporate law: I discuss E&F’s concern that any attention to fairness and distribution would impede efficient choices by corporate insiders, and I contrast it with my analysis showing how rules regarding the distribution of corporate payoffs can discourage opportunistic insider choices that would provide them with a larger fraction of the piece but would be overall value-decreasing.

Corporate purpose: Although both E&F and I oppose encouraging and relying on corporate leaders to protect stakeholder interests, we do so for different reasons and offer different approaches regarding the extent to which and the ways in which stakeholders should be protected by governmental rules and interventions.

The essay is available here, and comments would be most welcome.

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