Sharon Hannes

A Demand-Side Theory of Antitakeover Defenses

This paper develops a demand and supply framework to analyze the adoption of antitakeover defenses and constructs a demand‐side theory of antitakeover provisions (ATPs). The paper views the decision to go public without ATPs as a decision to produce an unshielded target and shows that the classic literature focused on the costs of producing such a target but barely accounted for demand‐side considerations. The paper argues that the more firms there are producing unshielded targets (and, therefore, the fewer firms there are adopting ATPs), the lower the price the market is willing to pay for the unshielded product. The reason for this is that not only do ATPs prevent takeovers, they also divert takeover activity to unshielded targets. The combination of existing supply‐side explanations with the novel demand‐side theory works to explain the findings of recent empirical studies of ATPs at firms in the initial public offering stage that have puzzled the corporate finance and corporate law literature.

Compensating for Executive Compensation: The Case for Gatekeeper Incentive Pay

A massive wave of corporate fraud at the beginning of the twenty first century exposed the failure of corporate gatekeepers. The Sarbanes-Oxley legislation accordingly targeted gatekeepers, primarily auditors, by imposing strict regulation and enhanced independence guidelines. This legislative remedy is of disputable benefit while its costs have been huge. This paper maintains that a certain type of auditor incentive compensation could work better than regulation. Under such an alternative scheme, auditors would defer a portion of the payment they receive from the client firm, which would be used to purchase shares in the client after their tenure as auditor has ended. Instead of making them simply independent, this compensation structure would cause auditors to fend against inflated share prices. This type of auditor compensation could, therefore, serve to counterbalance recent trends in executive compensation that cause managers to overstate earnings. Modern accounting standards that augment managements scope of discretion make the suggested type of auditor compensation even more beneficial. Thus, the paper advocates calls for the Securities and Exchange Commission to promulgate a safe harbor that would facilitate such compensation schemes, which current independence guidelines do not allow.

Brave New World: A Proposal for Institutional Investors

Abstract The purpose of this Article is to consider a novel framework for institutional shareholders’ activism in the United States. This new activism framework would be aimed at improving, at minimal costs, the performance of the portfolio companies in which institutional shareholders invest. The Article begins by laying out this new activism framework and then compares the proposed framework with the prevalent mode of activism through hedge funds. The Article concludes with a discussion of certain implementation challenges, and calls for future research into the proposed activism framework.

Images of Organizations and Interfirm Externalities: A Comment on Rubin

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