Financial Regulation Lab (LabEx ReFi), the New York University (NYU), the Leibniz Institute for Financial Research SAFE (SAFE) and the Center for Advanced Studies on the Foundations of Law and Finance (LawFin) organize and cordially invite you to the the first web seminar from the Law & Banking/Finance Web Seminar Series
Title: Fallacies of Composition: From the Local to the Systemic in Antitrust, in Banking, and in Corporate Law
Speaker: Mark J. Roe (Harvard Law School)
Jointly organized by Financial Regulation Lab (LabEx ReFi), the New York University (NYU), the Leibniz Institute for Financial Research SAFE (SAFE) and the Center for Advanced Studies on the Foundations of Law and Finance (LawFin). The Webinar Series takes place weekly from June 2 until August 2, 2020, every Tuesday at 3 p.m.
Abstract: Corporate law analysis has become strongly data oriented. We measure rules’ impact on corporate value. This is a major advance over prior, low-evidence decisionmaking. But the advance has limits. Some difficulties are well-known, such as impediments to accurately measuring a rule’s impact or that measurement suppresses other vital values. More acute is that our current techniques do not measure economy-wide consequences well, or at all. For some key issues, that impact is all that counts.
For such issues, the typical empirics cannot tell us even the direction of the economy-wide impact of changing corporate law, much less an approximation of its magnitude. Corporate research is fundamentally about local results, not the economy-wide results that, depending on the issue studied, matter most. Sometimes local results scale up and reflect an economy-wide impact; sometimes they do not.
To highlight this missing aspect of corporate policy work, I contrast it with banking and antitrust - and with one general economics concept, that of distinguishing a partial equilibrium from a general one. For banking, we typically understand that a degradation of the banking sector will spill over and damage the rest of the economy. Hence, research that shows the likelihood of this or that feature inducing banking instability is automatically and appropriately assumed to have economy-wide risks that, if weighty, warrant considering policy intervention. In antitrust, it’s understood that a locally anticompetitive action might or might not have economy-wide effects that warrant policy intervention. Mergers that are otherwise identical are treated differently, depending on whether competitive entry is easy or hard: a merger that would lead to a high market share is more likely to be challenged if entry barriers are high and less likely to be challenged if entry barriers are low. There is no corporate analogue, either in policy or in current analytic scholarship. Yet for at least some corporate law considerations - several of which are prominent in current policymaking debates - there needs to be one.
