The ECGI Spotlight Series
The ECGI Spotlight Series is a global online seminar programme highlighting chosen papers from the ECGI Working Paper Series. The Spotlight Team works together to identify papers from the law and finance series' that will have broad appeal to members of the ECGI network. On occasion, papers may be identified that are not published in the working paper series and following presentation, they will be invited to publish in the series.
The ECGI Spotlight Team consists of Mike Burkart, Professor of Finance, London School of Economics and Political Science and Editor of the ECGI Working Paper Finance Series; Amir Licht, Professor of Law, Harry Radzyner Law School, Interdisciplinary Center Herzliya and Editor of the ECGI Working Paper Law Series; Miriam Schwartz-Ziv, Assistant Professor of Finance, Michigan State University; and Geeyoung Min, Assistant Professor of Law, Michigan State University College of Law.
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Ep.1 | Active Short Selling by Hedge Funds
Monday, 13 July 2020 | 16:00 CEST | 10:00 EDT
Short sellers play an important role in the transmission of negative information into price. Because short selling leads to negative price pressure, short sellers have been cast as villains throughout history. Following the crash of 1929, for example, the U.S. Senate released the names of large short sellers in an attempt to brand them as “unpatriotic.” Perhaps because of this negative sentiment, investors are often reluctant to publicly disclose short positions.
Yet, recent years have seen a new phenomenon: high-profile short-selling campaigns by hedge funds. David Einhorn's short of Allied Capital provides an illustrative example. In May of 2002, Einhorn announced a short position in Allied at an investment conference, arguing the firm engaged in questionable accounting practices. Allied's stock price dropped by over 10% the following day, and by the next month its short interest increased sixfold.
In this paper, we undertake a comprehensive analysis of short-selling campaigns by hedge funds. Consistent with anecdotal evidence, the prevalence of campaigns has increased considerably in recent years. We show that such campaigns are associated with abnormal returns for targets of approximately -7% as well as changes in the behavior of stakeholders (e.g., other short sellers). Campaigns are primarily undertaken by activist hedge funds, particularly those that have more experience or employ hostile tactics.
Presented by Vyacheslav Fos, Associate Professor of Finance and Hillenbrand Family Faculty Fellow, Boston College
Discussed by Stephen Fraidin, Partner at Cadwalader Wickersham & Taft LLP.
Ep. 2 | For Whom is the Corporation Managed in 2020?: The Debate over Corporate Purpose
Monday, 14 September 2020 | 16:00 CEST | 10:00 EDT
A high profile public debate is taking place over one of the oldest questions in corporate law, namely, “For whom is the corporation managed?”. In addition to legal academics and lawyers, high profile business leaders and business school professors have entered the fray and politicians have offered legislative “fixes” for the “problem of shareholder primacy.”
In this article, Professor Rock takes this debate to be an interesting development in corporate governance and tries to understand and explain what is going on. He argues that, analytically and conceptually, there are four separate questions being asked. First, what is the best theory of the legal form we call “the corporation”? Second, how should academic finance understand the properties of the legal form when building models or engaging in empirical research? Third, what are good management strategies for building valuable firms? And, finally, what are the social roles and obligations of large publicly traded firms? He argues that populist pressures that emerged from the financial crisis, combined with political dysfunction, have led to the confusion of these different questions, with regrettable results.
Presented by Ed Rock, Martin Lipton Professor of Law, Director, Institute for Corporate Governance & Finance, NYU | Law, Fellow of American College of Governance Counsel, and ECGI Fellow.
Click here to read summary article.
Ep. 3 | Trading and Shareholder Democracy
Monday, 16 November 2020 | 16:00 CET | 10:00 EST
The authors study shareholder voting in a model in which trading affects the composition of the shareholder base. Trading and voting are complementary, which gives rise to self-fulfilling expectations about proposal acceptance and multiple equilibria. Prices and shareholder welfare can move in opposite directions, so the former may be an invalid proxy for the latter. Increasing liquidity can reduce welfare, because it allows extreme shareholders to gain more weight in voting. Delegating decision-making to the board can improve shareholder value. However, the optimal board is biased, does not represent current shareholders, and may not garner support from the majority of shareholders.
Presented by Nadya Malenko, Associate Professor of Finance at the University of Michigan, Ross School of Business; Associate Editor at the Journal of Finance, Review of Financial Studies, and Journal of Corporate Finance, ECGI Research Member.
Ep. 4 | Institutional Investors and Corporate Governance
Monday, 22 February 2021 | 16:00 CET | 10:00 EST
This Spotlight Series highlighted how the defining aspect of institutional investors differentiates them in their governance role from standard principal block-holders and the heterogeneity amongst institutional investors as block-holders.
The authors provide a comprehensive overview of institutional investors' role in corporate governance, focusing on three components. First, a detailed characterization of key aspects of the legal and regulatory setting within which institutional investors operate with respect to the governance of their portfolio firms. Second, the emergence of institutional investors as the modal concentrated owners of public firms in modern economies, using a wide variety of data sources to establish new stylized facts. Third, synthesize the evolving “response” of the academic literature in finance to the emergence of institutional investors in corporate governance, attempting to link theoretical predictions to empirical findings.
Presented by Amil Dasgupta, Professor of Finance at the London School of Economics and ECGI Research Member, Vyacheslav Fos, Associate Professor of Finance and Hillenbrand Family Faculty Fellow Boston College and ECGI Research Member, Zacharias Sautner, Professor of Finance at Frankfurt School of Finance & Management and ECGI Research Member
Ep. 5 | AI in Corporate Law and Practice
Monday, 12 April 2021 | 16:00 CEST | 10:00 EST
Artificial intelligence (AI) involves the use of computer systems to perform tasks for which humans would ordinarily use their brains. Dramatic recent advances in computer science have triggered considerable interest in the impact AI will have on a range of white-collar contexts. This Spotlight seminar explored two of these: legal services and corporate boardrooms.
AI will impact considerably on corporate activities and legal work that are frequently repeated and for which data can be aggregated. This in turn implies that many organisations will face competitive pressure to restructure themselves in order to maximise the benefits of the adoption of AI. The deployment of AI systems will be supported by complementary new human roles, involving domain experts and technical experts working together in multidisciplinary teams. Nevertheless, even within corporations, such deployment will entail important strategic questions along with major new ethical and compliance responsibilities. The oversight of these will be an important new work agenda for corporate boards, with implications for their job descriptions and legal duties.
Presented by John Armour, Professorship in Law and Finance at the University of Oxford and ECGI Research Member, Hse-Yu Iris Chiu, Professor of Corporate Law and Financial Regulation at the University College London and ECGI Research Member, Florian Moeslein, Professor of Law at the Philipps-University Marburg and ECGI Research Member
Click here to access "Augmented Lawyering" paper.
Click here to access "Self-Driving Corporations?" paper.
Ep. 6 | Bail-outs and Bail-ins are better than Bankruptcy
Monday, 28 June 2021 | 16:00 CEST | 10:00 EST
COVID-19 has severely disrupted the conduct of business around the globe. In jurisdictions that impose one or more ‘lockdowns’, multiple sectors of the real economy must endure prolonged periods of reduced trading or even total shutdowns. The associated revenue losses will push many businesses into bankruptcy. No public policy response can recover these losses.
The more attractive routes to relief are bail-ins (one-time orders to creditors or counterparties, or some class thereof, to forgive), bail-outs (offers to assume the debtor’s liabilities, or a class thereof), or some combination of the two. In this paper, the authors explain why a public policy response is necessary to mitigate the amplification of the shock caused by trading shut-downs, and we compare treatment by the prevailing bankruptcy law with treatment by bail-ins or bail-outs along a range of dimensions. They conclude by suggesting principles to help guide the choice between bail-ins and bail-outs, and the design of either form of intervention. These principles should offer a useful starting point for thinking about the design and delivery of novel forms of relief to debtors distressed by COVID-19 related revenue losses.
Presented by Kristin van Zwieten, Associate Professor of Law and Finance at the University of Oxford and ECGI Research Member, Anthony Casey, Professor of Law and Economics at the University of Chicago Law School and ECGI Research Member, Aurelio Gurrea-Martínez, Assistant Professor of Law at Singapore Management University and ECGI Research Member
Click here to access "Bail-outs and Bail-ins are better than Bankruptcy: A Comparative Assessment of Public Policy Responses to COVID-19 Distress " paper.
Ep. 7 | Investor Impact on ESG
Monday, 18 October 2021 | 16:00 CEST | 10:00 EST
Investors’ support for environmental and social (E&S) proposals at shareholder meetings has reached new heights in 2021, demonstrating that investors’ support on these issues has become increasingly strong.
In this seminar, three separate studies regarding financial institutions’ involvement in promoting ES goals were presented and discussed. These studies focus on whether and when financial institutions’ funds vote in support of ES proposals, whether they do so when their votes actually make a difference, and whether institutions’ votes contain information on firms’ future risks. Additionally, the seminar touched upon the engagements of large financial institutions with respect to reducing corporate carbon emissions around the world, and the impact of such engagements.
Presented by Roni Michaely, Professor of Finance and Entrepreneurship at the University of Hong Kong and ECGI Research Member, Michelle Lowry, TD Bank Professor of Finance at the LeBow School of Business, Drexel University, and the Academic Director of the Gupta Governance Institute at the University and ECGI Research Member, Gaizka Ormazabal, Associate Professor of the IESE Business School and ECGI Research Member
Click here to access the below papers:
- ES Votes That Matter
- ES Risks and Shareholder Voice
- The Big Three and Corporate Carbon Emissions Around the World
Ep. 8 | The Power of the Narrative in Corporate Lawmaking
Monday, 04 April 2022 | 16:00 CEST (10:00 EDT)
The power of narratives can determine business, economic, and political outcomes
To illustrate how important narrative power is and how it can be analyzed, Professors Roe and Shipra delve into the concept of stock-market-driven short-termism. Their study offers hypotheses for why short-termism belongs to a group of corporate ideas that are simply better at being popular than others. Specifically, three strong qualities make its narrative power formidable: favourable initial connotations, category confusion, and repeated confirmation.
Presented by Mark J. Roe, David Berg Professor of Law at Harvard Law School and ECGI Research Member and Dr. Roy Shapira, Professor of Law at Harry Radzyner Law School, Reichman University.
Click here to access the below papers: The Power of the Narrative in Corporate Lawmaking