Scholars working in the ‘law and finance’ field have investigated empirically the links between various types of law and the incidence of venture capital finance. However, no study to date has systematically investigated the relationship between insolvency law – both personal and corporate – and venture capital finance. This paper argues that a nation's personal insolvency law may have an important impact on the demand for venture capital finance, with more severe treatment of insolvents tending to reduce demand. This hypothesis is subjected to a preliminary test by comparing data on venture capital investment activity with an index of ‘severity’ of insolvency laws, and is not falsified. This finding will be of interest to policymakers, as a number of recent national and EU initiatives have sought explicitly to encourage innovative firms and venture capital finance.

This paper focuses on localising network-specific market power in new markets. Three levels of transmission quality in service markets can be differentiated according to the products provided: narrowband services like PSTN/ISDN or GSM, semi high-speed broadband services, like broadband internet access up to 6 Mbps download, and VDSL services up to 50 Mbps. As long as a monopolistic bottleneck exists in local infrastructure networks due to the absence of alternative network infrastructures, the question arises what the remaining bottleneck components are for these different markets. In this paper, the shrinking bottleneck hypothesis will be demonstrated.

We contribute to the literature on cross-shareholdings and board interlocks in Italy which finds possible evidence of enlarged collusion, that is, collusion established through board interlocks among companies that do not necessarily operate in the same business sector. We focus on Italian blue chips (about 80% of total market capitalisation) in 1998 and in 2008, examining the entire network of cross-shareholdings higher than 2% of total voting rights which we compare to the entire network of interlocking directorates among these blue chips. We find that in 1998 enlarged collusion only takes place among those blue chips that are also linked by cross-shareholdings (Mediobanca Galaxy), which reinforces the hypothesis that in Italy this form of collusion is functional to shareholder expropriation. In addition, we find that in 2008 new shareholders appear at the top of the Galaxy and the Galaxy extends its reach through board interlockers to the rest of the blue chips.

The Turkish Capital Market Board introduced its Corporate Governance Principles in 2003. The Principles are based on the concepts of equality, transparency, accountability and responsibility. While they are generally modelled on the Corporate Governance Principles of the OECD, they also take into consideration the special needs of Turkish company structures and Turkish company law and practice. The Principles apply on a comply-or-explain basis and contain detailed guidelines on the rights of shareholders, public disclosure and transparency, stakeholders and the board of directors. Listed companies are under an obligation to issue an annual corporate governance compliance report showing the extent of their compliance with the Principles and explaining the reasons for any deviation. The board of directors and the company can be held liable by investors for deceiving them with wrong or misleading information contained in the report. As for the actual implementation of the Principles, surveys indicate that there is room for improvement and that more time is needed for full application.

In SEVIC, the European Court of Justice (ECJ) held that the refusal of a national commercial court to register a cross-border merger may constitute a violation of the freedom of establishment. In the future, this decision will be superseded by the new Cross-Border Merger Directive. Thus, the importance of the SEVIC decision could be doubted. This note, however, shows that SEVIC has significance beyond cross-border mergers, namely with respect to seat transfers, cross-border divisions and cross-border takeovers.

In recent years, there has been a growth in the use of English schemes of arrangement by companies registered in other EU Member States. Recent high-profile examples include TeleColumbas GmbH, Rodenstock GmbH, Primacom Holdings GmbH, Re Metrovacesa SA and Re Seat Pagine Gialle SpA, although there are many more. In each case, these companies were able to access the English scheme jurisdiction without shifting their seat or COMI to the UK. This paper investigates this phenomenon, explaining the use of an English scheme of arrangement and why it might be regarded as valuable to these companies. The paper then tackles two issues. First, it assesses how these companies are able to access the English scheme jurisdiction, and, in particular, it analyses the potential application of both the Insolvency Regulation and the Judgments Regulation in this regard. As part of this analysis, the recognition and enforcement of English schemes of arrangement in other Member States is discussed. Second, it considers whether this use of English schemes by companies registered in Germany, Spain, Italy and elsewhere gives rise to issues of forum shopping. This paper rejects the idea that forum shopping should be regarded as a concern in this context.

This article addresses the question what will be the impact of the recently admitted choice of corporate law in Europe and how regulators can and should react.

Drawing on the empirical evidence and theoretical insights produced in the abundant debate on charter competition in the United States, this article argues that the European scenario differs significantly from the American one. A look at the most relevant differences and an analysis of European incorporators' incentives leads to the conclusion that no Member State occupies at present, or has proper incentives and political manoeuvring space to assume in the future, a similarly preponderant position like the winner of the historical American competition for corporate charters. Although the individual preferences of decision-makers may motivate some cross-border (re)incorporations, no dominant State of incorporation will emerge in the European Union in the medium term.

Synthesised with the possible restraints Member States can put on corporate law arbitrage, the important conclusion to be drawn from a public policy perspective is that, in the European context, some forces arguably accountable for a socially undesirable pro-managerial tilt in the American market for corporate charters are not present. Thus, the case for remedying centralised legislation is harder to make in the European Union. Some of the prospective and existing harmonisation, even if only providing minimum standards, has to be reassessed from this perspective.

There has been much talk about regulatory reform around the world in the wake of the financial crisis but relatively little action. As a major international financial centre, the UK is very much at the heart of the debate and has a particular interest in the ultimate outcome. The financial crisis has exposed the weaknesses of ‘light touch’ regulation and ‘principles-based’ regulation, which characterised the UK system in the pre-crisis phase. Changes to the institutional structure of regulation recently announced by the new coalition government, combined with changes to regulatory style, are likely to have far-reaching consequences for the practice and intensity of regulation in the UK. This article reviews and assesses recent and proposed regulatory changes and considers the relationship between corporate governance and regulation. It evaluates the impact on the UK system of initiatives undertaken at international and EC levels as well as various interests and incentives within the UK that are likely to be influential in shaping the regulatory regime in years to come.

The governance of finance is replete with challenges as evidenced by the frequent financial crises that have accompanied the growth and development of financial markets. Every crisis can be taken as a symptom of governance failure. The immediate reaction tends to be an attempt to fix the problems that gave rise to the most recent crisis. By definition, such a regulatory approach lags behind actual developments on the financial marketplace, thereby inadvertently sowing the seeds for the next governance failure. A similar lag effect can be observed in current attempts to repair the governance of global finance. This paper argues that reform proposals currently under discussion fail to take into account important changes in the organisation of global financial relations between financial intermediaries, their home governments and sovereign wealth funds (SWFs). They challenge the basic principles that inform conventional regulatory regimes: a clear distinction between public vs. private; regulation vs. firm-level governance; and stakeholding vs. supervision. The paper discusses alternative modes of governance that have emerged during the crisis and are complementing for, if not substituting, more conventional forms of governance.

This survey article summarises the findings of four research projects on the venture capital industry in Europe and the role played by legal institutions and the legal framework. A study on patent litigation insurance argues that insurance can create a level playing field for small innovators, but that compulsory insurance can only be justified as a transitory scheme. The second study argues that intermediaries from countries with a better legal tradition will provide more governance and value-added services, even when investing abroad. It also provides supportive empirical evidence based on an extensive questionnaire study. The third project investigates the relationship between venture investments and a widely used legality index in thirty-nine countries, finding that better laws facilitate faster deal screening and origination, lead to a higher probability of syndication and also facilitate board representation of the investors. The final study documents a significant performance gap between the European and the US venture capital industry, but argues that the difference can not be attributed to differences in legal origin.

Many governments, as well as the European Commission, have engaged in active reforms of the legal profession (namely with regard to lawyers). This paper analyses the relevant dimensions of these reforms (access, fees, marketing, organisation and conduct). One of the major criticisms of these reforms is that they are excessively oriented by economic reasoning. This paper provides a more critical framework of the reforms and identifies the shortcomings of what has been incorrectly perceived as economic reasoning.

Covenants are a means to mitigate the agency problems between borrower and lender that are induced by the allocation of cash flow rights in a debt contract. This comment shows that if covenants could be renegotiated without any transaction costs they could be used to induce efficient behaviour on the part of the borrower and to fully protect lenders. Due to problems of asymmetric information, collective action and hold-up, however, covenants are imperfect. The analysis suggests several ways to improve the functioning of covenants.

The sale of retail financial products, such as investment funds but also mortgage products, is frequently combined with the provision of advice, which opens up the possibility of unsuitable advice and misselling. The article argues that despite recent legal changes in Europe, such as MiFID, there is still much scope for the improvement of both legal norms and supervisory activity. To obtain a logically consistent and workable framework, consumer protection, both generally and applied to the field of retail finance, must be put on a sound economic basis.

Protection of corporate creditors has become an important topic within the European Union. At EU level, discussion has been sparked by widespread dissatisfaction with some very rigid and cumbersome provisions, and even with the whole concept of the Second Company Law Directive. At EU Member State level, three landmark decisions by the European Court of Justice – Centros, Überseering, and Inspire Art – opened the way for an all-out competition between the different company forms provided for by national company laws. At both levels, albeit for different reasons, British company law – and in particular the absence of any legal capital in the private limited company – acts as the main driving force putting pressure on the concept of legal capital as enshrined in the Second Directive, which in turn was modeled on German company law notions.

The High Level Group of Company Law Experts provided the appropriate starting point for the present discussion by dealing not only with the raising and maintenance of capital, but by also taking up the wrongful trading remedy (s. 214 British Insolvency Act) and the equitable subordination remedy. This present article builds upon this broader approach, seeking to develop a conceptual framework for an efficient creditor protection regime within a purely national setting, i.e., leaving aside the additional problems created by pseudo-foreign companies and the impact of the provisions of the EU Treaty for the free movement of companies on national company laws.

Given the rich variety of creditor protection mechanisms within EU Member States, any attempt at developing even a high-level framework has to start by identifying the relevant risks against which creditors need protection and the required extent of such protection. Against this backdrop, any jurisdiction has to make a choice whether to rely mostly on creditor self-help or on mandatory protection rules. In principle, since all mechanisms for creditor self-help are inherently costly and fail to protect involuntary (tort) creditors and “weak” contractual creditors as effectively as they do “strong” contractual creditors, there is a case for mandatory protection rules. The article then goes on to review the different well-known mechanisms for mandatory creditor protection. In line with earlier findings and the criticism mostly from English scholars, the case for a German-style legal capital regime turns out to be weak, at best.

On the other hand, since shareholders' incentive to act to the detriment of creditors increases with the company becoming financially distressed, it is important to provide for mechanisms that will work to effectively control any opportunistic behavior on the shareholder's part. In this respect, equitable subordination of a shareholder's right as well as the wrongful trading remedy may serve important roles. The article concludes by taking a brief look at the resultant high-level framework for an efficient creditor protection regime.

This paper examines the contract interpretation strategies adopted by the International Swaps and Derivatives Association (ISDA) for its credit derivatives contracts in the Greek sovereign debt crisis. We argue that the economic function of sovereign credit default swaps (CDS) after Greece is limited and uncertain, partly thanks to ISDA's insistence on textualist interpretation. Contract theory explanations for textualist preferences emphasise either transactional efficiency or relational factors, which do not fit ISDA or the derivatives market. We pose an alternative explanation: the embrace of textualism in this case may be a means for ISDA to reconcile the competing political demands from state regulators and its market constituents. We describe categories of contracts susceptible to such political demands, and consider when and why textualism might be the preferred response.

Conventional economic reasoning suggests that formal insolvency proceedings should commence once the greater of the going concern value or the liquidation value of a firm falls below the value of its liabilities. Since this test is difficult to apply in practice, an additional cash flow test is needed: formal insolvency proceedings should commence if a firm is not able to pay its due debts. Two factors complicate this analysis: risk-shifting incentives of shareholders/managers in the vicinity of insolvency and the (rapid) decline of a firm's going concern value once it approaches insolvency. The former problem should be addressed by a liability rule for wrongful trading. Based on a review of the current legal position in the United States, the United Kingdom and Germany, a uniform European rule is proposed that imposes liability on managers of insolvent companies for trading while they knew or should have known that insolvency was more probable than not, unless they can show that they took all reasonable steps to avoid insolvency. The decline of a firm's going concern value once it approaches insolvency provides all stakeholders with an incentive to try a workout to save as much of the going concern value as possible. However, workouts often fail in practice due to free-rider effects. Cooperation duties are proposed as a means to support workouts. Such duties should be triggered once a workout is initiated. It is suggested that bankruptcy rules, in general, and rules on the initiation of bankruptcy proceedings, in particular, should in principle be enabling rather than mandatory.

Executive compensation has been a topic of intense debate in the United States for decades. The controversy goes back to the early 1990s when, on the one hand, the high average level of CEO pay drew critical attention from the media and the public at large and, on the other hand, prominent financial economists urged companies to structure pay packages to provide managers with incentives to increase the value of the firm in the long run, regardless of the sociological or moral discussions on the amount of compensation granted. Throughout the following decade, a new executive pay pattern has emerged and become dominant: US public companies have been inclined to raise executive compensation with the specific aim of improving the sensitivity of managers' wealth to company performance.

We examine changes in the stock trading behavior and investment performance of 1,607 investors who switch from phone based to online trading during the period 1992 to 1995. We document that young men who are active traders with high incomes and a preference for investing in small growth stocks with high market risk are more likely to switch to online trading. We also find that those who switch to online trading experience unusually strong performance prior to going online, beating the market by more than two percent annually. After going online, they trade more actively, more speculatively, and less profitably than before – lagging the market by more than three percent annually. A rational response to reductions in market frictions (lower trading costs, improved execution speed, and greater ease of access) does not explain these findings. The increase in trading and reduction in performance of online investors can be explained by over confidence augmented by self-attribution bias, information-based overconfidence, and the illusion of control.

This article examines the likely impact of the United Kingdom's Company Law Review (CLR) on its system of corporate governance. The CLR recommended that company law should be amended to require companies to pursue ‘enlightened shareholder value’. This would be ensured primarily through a requirement on listed companies to produce an Operating and Financial Review (OFR). The OFR was introduced into law but was recently unexpectedly abolished by the Chancellor. The article examines the theoretical approach taken to corporate governance by the CLR and the way in which the OFR was expected to affect corporate governance. It then asks whether shareholder value would in fact have been enlightened by the OFR, given the institutional context in which it would have operated. While there are considerable grounds for scepticism about whether the OFR would have worked as the CLR expected, it is unfortunate that it was withdrawn because it was an important experiment in disclosure of qualitative information about intangible assets. The article concludes with some thoughts about whether shareholder value could still be enlightened in the absence of a mandatory OFR.

Since China's first comprehensive competition statute, the Anti-Monopoly Law (AML), took effect on 1 August 2008, Chinese competition enforcement authorities have enacted secondary legislation on merger review. Very recently, rules against monopoly agreements and abuse of dominance have also been adopted. This framework ensures that China's antitrust regime now operates with a degree of transparency and predictability. The AML addresses three broad categories of monopolistic conduct by business operators: monopoly agreements, abuse of dominance, and anti-competitive concentrations. This paper aims to analyse the latest enforcement developments in these three broad areas upon the three-year anniversary of the AML. Like most Chinese laws, the AML emphasises administrative enforcement over judicial enforcement. On the one hand, the author includes some meaningful studies on selected landmark decisions on merger control published so far by the Ministry of Commerce of China, and, on the other hand, focuses on the judicial enforcement by People's Courts through private actions for antitrust-type claims for damages.