Essays on corporate law and economics
Creators: name: Dammann, Jens C., 1973-
name: 0000-0002-0176-0330
Publisher: name: The University of Texas at Austin
Year: 2019
Subjects: Bylaw
Forum
Corporate
Delaware

description: This dissertation focuses on how certain changes in the legal and institutional environment for publicly traded corporations in the United States have impacted shareholder wealth and firm performance. The first chapter focuses the legalization of so-called forum bylaws. By adopting such bylaws, corporate boards can specify an exclusive forum for shareholder lawsuits against the corporation and its managers. Thus, corporate boards are able to put an end to multi-district litigation and forum shopping by shareholder plaintiffs. Starting in 2013, various U.S. states adopted case law or statutes permitting firms to adopt forum bylaws. Using an event study approach, I provide evidence consistent with the idea that the impact of legalizing forum bylaws depends on the state of incorporation. Both the Boilermakers decision that embraced the legality of forum bylaws under Delaware law and subsequent judgments enforcing such bylaws were accompanied by positive abnormal returns for Delaware firms. By contrast, the adoption of forum bylaw legislation in New Jersey was associated with negative abnormal returns for New Jersey firms. Moreover, when the American Bar Association announced its intention to change the Model Business Corporation Act to allow forum bylaws, firms incorporated in states that were most likely to copy that change experienced statistically significant negative abnormal returns. These findings are consistent with the hypothesis that the legalization of forum bylaws benefits shareholders of Delaware firms, but may harm shareholders of firms incorporated in other states. A possible explanation is that Delaware has a particularly excellent court for corporate litigation, whereas most other states lack that advantage. The second chapter focuses on the question of whether giving corporations access to high-quality courts for litigating their internal affairs benefits shareholder wealth and firm performance. To shed some light on this question, this paper focuses on the creation of business courts in various states between 1992 and 2017. Relying on an event-study design, I find that stock prices of firms that are both headquartered and incorporated in states creating business courts experience statistically significant abnormal returns of 1.2 % at the time that such business courts are created relative to firms that are only headquartered in the pertinent state, but incorporated elsewhere. Notably, these results are driven by the creation of business courts in those states, whose general court systems fare poorly in court quality rankings. To explore the long-term relationship between business courts and firm performance, I employ a difference-in-differences approach and find that, controlling for headquarters-state year fixed effects, the existence of a business court is associated with a higher return on assets, a higher return on sales, and an increased likelihood for firms to become the target in a merger with positive abnormal returns for the target shareholders. Finally, using both probit and linear probability models, I find that firms are more likely to incorporate locally if their home state has a business court. The third chapter focuses on the emerging practice among courts to defer to Delaware precedents in deciding corporate law cases. Delaware is home to more than half of all public corporations, and its market share among initial public offerings is even higher. Not surprisingly, therefore, an extensive body of literature is dedicated to exploring the causes and consequences of Delaware's preeminence as a state of incorporation. There exists, however, a second and largely ignored dimension in which Delaware has come to dominate U.S. corporate law: the common law process. Courts in numerous other states now accord Delaware case law a previously unheard-of level of deference: many state judiciaries have declared explicitly that they will look to Delaware cases in deciding open legal questions. In this paper, I undertake an empirical analysis of Delaware's impact on the corporate common law of other states. Using a hand-collected dataset of state and federal cases, I gain a number of important insights. First, deference to Delaware may be driven in part by functional considerations. States that have based their law on the Model Business Corporation Act (MBCA) and can therefore rely on case law from other MBCA states are less likely to defer to Delaware precedents. Second, firms are more likely to incorporate locally if their home states' courts look to Delaware precedents in corporate law matters. Third, stocks of corporations that are incorporated in the deferring state tend to experience positive abnormal returns at the time of court decisions that introduce the principle of deferring to Delaware case law. Fourth, there is some, albeit mixed, evidence that that stock price reaction is substantially stronger for those firms where agency conflicts between managers and shareholders are more pronounced. This last finding is intuitive in the sense that well-governed firms, if they stood to benefit from the application of Delaware case law, might already have (re)incorporated in Delaware.