In Conversation with Prof. Albert H. Choi

Watch the latest ECGI Conversation as Dr. Tom Gosling interviews Albert Choi, Paul G. Kauper Professor of Law at University of Michigan to discuss his recent paper, “Pricing Corporate Governance”.

The paper explores whether the IPO market can discipline firms to choose optimal governance structures on IPO. Albert and Tom discuss the following:

• Many firms on IPO operate governance structures widely considered to be suboptimal for investors such as staggered boards and dual class shares

• Yet traditional theories suggest that firms are incentivised to choose the optimal governance structure at IPO in order to maximise firm value

• However, information asymmetries between public investors and firms at IPO can result in sub-optimal structures being chosen, meaning that the market may not act as a disciplining measure on firms

• The paper considers various devices to address this including verification using a costly gatekeeper, reliance on management ownership, deliberate under-pricing, and post-IPO liability. None of these are found to be ideal solutions

• The paper applies the implications to the case of dual class shares and considers when features such as sunset clauses may be appropriate

ECGI Conversations is an interview series aimed at uncovering valuable insights, ideas, and perspectives from cutting-edge academic research. Hosted by ECGI Executive Fellow, Dr. Tom Gosling, this series delivers engaging discussions with leading experts in the field.

The ECGI Conversation Series is part of the Responsible Capitalism initiative. 

For more interviews in this series, visit this page.