Barbara A. Bliss et al., Negative Activism, 97 Washington University Law Review (forthcoming)

  • Barbara A. Bliss et al., Negative Activism, 97 Washington University Law Review (forthcoming)

Shareholder activism has become one of the most important and widely studied topics in law and finance. To date, popular and academic accounts have focused on what we call “positive activism,” where activists seek to profit from positive changes in the share prices of targeted firms. In this Article, we undertake the first comprehensive study of positive activism’s mirror image, which we term “negative activism.” Whereas positive activists focus on increasing share prices, negative activists take short positions to profit from decreasing share prices.

via Harvard

Robert P. Bartlett et al., The Myth of Morrison: Securities Fraud Litigation Against Foreign Issuers, SSRN (2018)

We find that the description of Morrison as a “steamroller” substantially ending litigation against foreign issuers is a myth. Instead, we find that Morrison did not substantially change the type of litigation brought against foreign issuers, which both before and after Morrison focused on foreign issuers with a U.S. listing and substantial U.S. trading volume. While dismissal rates rose post-Morrison we find no evidence that this is related to the decision. Settlement amounts and attorneys’ fees actually rose post-Morrison.

Jonathan R. Macey & Joshua Mitts, Asking the Right Question: The Statutory Right of Appraisal and Efficient Markets, SSRN (2018)

We contend that courts should look at the market price of the securities of a target company whose shares are being valued, unadjusted for the news of the merger, rather than at the deal price that was reached by the parties in the transaction.

Unadjusted market price has two distinct advantages over deal price. First, the unadjusted market price automatically subtracts the target firm’s share of the synergy gains and agency cost reductions impounded in the deal price. This is appropriate to do because dissenting shareholders in appraisal proceedings are not entitled to these increments of value which are supplied by the bidder. Second, the unadjusted market price is unaffected by any flaws in the deal process that led to the ultimate merger agreement. Recently, commentators have contended that deal prices in merger transactions should be ignored in appraisal cases where there are flaws in the process that led to the sale.

Richard H. Thaler, Nudge, not Sludge, 361 Science 431 (2018)

Sunstein and I stressed that the goal of a conscientious choice architect is to help people make better choices “as judged by themselves.” But what about activities that are essentially nudging for evil? This “sludge” just mucks things up and makes wise decision-making and prosocial activity more difficult.

Suresh Nallareddy, Robert Pozen & Shivaram Rajgopal, Consequences of Mandatory Quarterly Reporting: The U.K. Experience (2017)

… We exploit the start of mandatory quarterly reporting by the Financial Conduct Authority (FCA) in 2007 and the end of the requirement in 2014 in the United Kingdom to examine corporate and capital market behavior. After imposition of mandatory quarterly reporting in 2007, we find (i) a dramatic decline in the number of companies that issue reports with quantitative information (defined as including both sales and earnings numbers for the quarter); (ii) a substantial increase in companies announcing managerial guidance for the upcoming year’s earnings or sales; and (iii) an increase in analyst following for all sample companies. However, using a difference-in-differences analysis, we find that the imposition of mandatory quarterly reporting has virtually no impact on firms’ investment decisions. Companies that voluntarily moved back from quarterly to semi-annual reporting after 2014 have experienced a reduction in analyst coverage, but no detectable increases in their levels of corporate investments.

via Oxford

Matthew D. Cain et al., The Shifting Tides of Merger Litigation (2017)

In 2015, Delaware made several important changes to its laws concerning merger litigation. These changes, which were made in response to a perception that levels of merger litigation were too high and that a substantial proportion of merger cases were not providing value, raised the bar, making it more difficult for plaintiffs to win a lawsuit challenging a merger and more difficult for plaintiffs’ counsel to collect a fee award.

We study what has happened in the courts in response to these changes. We find that the initial effect of the changes has been to decrease the volume of merger litigation, to increase the number of cases that are dismissed, and to reduce the size of attorneys’ fee awards. At the same time, we document an adaptive response by the plaintiffs’ bar in which cases are being filed in other state courts or in federal court in an effort to escape the application of the new rules.

This responsive adaptation offers important lessons about the entrepreneurial nature of merger litigation and the limited ability of the courts to reduce the potential for litigation abuse. In particular, we find that plaintiffs’ attorneys respond rationally to these changes by shifting their filing patterns, and that defendants respond in kind. We argue, however, that more expansive efforts to shut down merger litigation, such as through the use of fee-shifting bylaws, are premature and create too great a risk of foreclosing beneficial litigation. We also examine Delaware’s dilemma in maintaining a balance between the rights of managers and shareholders in this area.