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28 July 2016  

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See the latest research from the ECGI published in the ECGI Finance Working Paper series
Thu, 19 Nov 2015 10:45 GMT  
ECGI Finance Working Paper 456/2015

by
Giovanna Nicodano, University of Turin and ECGI Luca Regis, IMT Institute for Advanced Studies Lucca

Submitted by
Giovanna Nicodano
Keywords:
Ownership Structure, Capital Structure, Dividend Taxes, Thin Capitalization, Groups, Securitization, Private Equity

This paper studies the ownership connection between two units that share a common controlling entity. Our results generate diverse organizations, including the horizontal groups of US family firms and the hierarchical ownership of both multinationals and European groups. The driver of ownership is the optimal capital structure associated with the tax-bankruptcy trade-off. We also examine optimal mutations in response to dividend taxes, to caps on interest deductions and to “no bailout” rules.


to view details and download this Working Paper from the SSRN website

All ECGI Working Papers in the Law and Finance series are available on the ECGI website at www.ecgi.org/wp
See the latest research from the ECGI published in the ECGI Law Working Paper series
Wed, 23 Sep 2015 12:57 GMT  
ECGI Law Working Paper 300/2015

by
Holger Spamann, Harvard University

Submitted by
Holger Spamann
Keywords:
Business judgment rule, director liability, duty of care, manager liability, fiduciary duties, informativeness principle

This paper clarifies why optimal corporate governance generally excludes monetary liability for breach of directors’ and managers’ fiduciary duty of care. In principle, payments predicated on judicial evaluations of directors’ and managers’ business decisions could usefully supplement payments predicated on stock prices or accounting figures in the provision of performance incentives. In particular, the optimally adjusted combination of standard performance pay and tailored partial liability could impose less risk on directors and managers, and provide better risk-taking incentives, than standard performance pay alone. This paper shows this in a formal model summarizing well-known results. Consequently, the reason not to use liability incentives is not absolute but a cost-benefit trade-off. Litigation is expensive, while the benefits from refining incentives are limited, at least in public firms. Equity pay already provides fairly good incentives, courts have difficulties evaluating business decisions, and the agency conflict in standard business decisions is limited. The analysis rationalizes many existing exceptions from non-liability but also leads to novel recommendations, particularly for entities other than public corporations.


to view details and download this Working Paper from the SSRN website

All ECGI Working Papers in the Law and Finance series are available on the ECGI website at www.ecgi.org/wp