The Law of Corporate Finance: General Principles and EU Law - Volume I: Cash Flow, Risk, Agency, Information

Table of Contents

1 Introduction

1.1 What Does Corporate Finance Law Mean?

1.2 Why Was This Book Written?

1.3 What Are the Themes of This Book?

1.4 General Principles and the Firm

2 The Nature of Corporate Finance Law

2.1 Introduction

2.2 Key Objectives of Corporate Finance Law

2.3 Corporate Finance Law and Efficiency

2.4 Comparison with Other Fields of Law

2.5 Key Tools and Practices in Corporate Finance Law

3 Management of Cash Flow: General Remarks

3.1 The Scope of Legal Considerations

3.2 Generic Ways to Manage Cash Flow

4 Management of Risk: General Remarks

4.1 Introduction

4.2 Legal Risk

4.2.1 Introduction

4.2.2 Different Categories of Legal Risk

4.2.3 The Effect of the EU on Legal Risk

4.2.4 Excursion: Directly Applicable Community Law

4.3 Management of Legal Risk

4.3.1 Introduction

4.3.2 Strategic Level

4.3.3 Operational Level

4.3.4 Transactional Level

4.4 Management of Risk by Legal Means

4.4.1 Introduction

4.4.2 Living with Risk

4.4.3 Transfer of Risk Through Incorporation

4.4.4 Community Law, Incorporation, Governing Law

4.4.5 Transfer of Risk Through Contracts

4.4.6 Mitigation of Risk Through Diversification

5 Agency, Risk, Transparency, Governance

5.1 Corporate Risk Management v Corporate Governance

5.2 Partly the Same Legal Tools

6 Management of Agency in General

6.1 Introduction

6.2 Behaviour Modification

6.3 Choice of the Scope of Agency

6.4 Alignment of Interests

6.5 Monitoring (Transparency)

6.6 Choice of Agents

6.7 Rules and Standards

6.8 Initiation and Ratification

6.9 Trusteeship and Reward

6.10 The Role of Legal Background Rules

7 Corporate Risk Management

7.1 Introduction

7.1.1 General Remarks

7.1.2 Financial Theory, Strategy, and the Firm

7.1.3 Corporate Risk Management as a Business Discipline

7.1.4 Costs, Risk Level, Compliance, Agency, Information

7.2 Strategic Risk Management

7.3 Operational Risk Management

7.4 Fundamental Organisational Measures

7.5 Excursion: Dealings with Third Parties

7.6 The Regulation of Corporate Risk Management

7.6.1 Introduction

7.6.2 Basel II and Ratings

7.6.3 Fair Value Accounting of Financial Assets

7.6.4 Basel II and the Governance of Banks

7.6.5 The MiFID and Risk Management

7.6.6 Disclosure of Risk

7.6.7 The Contents of Risk Management Policies

8 Agency and Corporate Governance

8.1 Introduction

8.2 Three-level Choices, Theory of Corporate Governance

8.2.1 General Remarks

8.2.2 First Level, Artificial Person

8.2.3 First Level, Organisation

8.2.4 First Level, Legal Organisation v Real Organisation

8.2.5 Second Level, the Firm as the Principal

8.2.6 Third Level, the Interests of the Firm

8.3 The Function of the Board

8.4 Particular Remarks: Extreme Cases

8.5 The Function of Stakeholders

8.6 Allocation of Value and Risk

8.7 The Role of Shareholders

8.7.1 The Interests of Shareholders

8.7.2 The Function of Shareholders

8.7.3 The Relative Importance of Shareholders

8.7.4 Should the Share Price Be Maximised?

8.7.5 What Does Making a Profit for Shareholders Mean?

8.7.6 What Are Shareholders Paid For?

8.7.7 How Can the Board Increase the Value of Shares?

8.7.8 Why Should the Firm Use Takeover Defences?

8.7.9 Why Are Shareholders Protected by Laws?

8.7.10 Should Shareholders Have Formal Powers?

9 Management of Agency in Corporate Governance

9.1 Introduction

9.2 Dealing with Different Agents: General Remarks

9.2.1 Agent Mix

9.2.2 Industries as Agents

9.2.3 The Firm as an Agent

9.2.4 Society at Large as an Agent

9.2.5 Shareholders as a Class as Agents

9.2.6 Individual Shareholders as Agents

9.2.7 Banks and Other Lenders as Agents

9.2.8 Customers and the Public as Agents

9.2.9 Managers as a Class as Agents

9.2.10 Individual Managers as Agents

9.2.11 The Board as an Agent

9.3 Community Law

9.3.1 Introduction

9.3.2 Separation of Decision Management and Control

9.3.3 Monitoring by the Board

9.3.4 Financial Reporting and Transparency

9.3.5 The Alignment of Interests, Financial Rewards

9.4 Controlling Shareholders’ Corporate Governance Tools

9.4.1 Introduction

9.4.2 Block-holding as a Corporate Governance Tool

9.4.3 The Board as a Corporate Governance Tool

9.5 Minority Shareholders’ Corporate Governance Tools

9.5.1 Introduction

9.5.2 Avoidance of Risk

9.5.3 Mitigation of Risk in Advance

9.5.4 Equivalent Treatment

9.5.5 Block-holding as a Corporate Governance Tool

9.5.6 Different Classes of Shares

9.5.7 Voting Caps

9.5.8 Exit Rights

9.6 “Good Corporate Governance” as a Tool

9.7 Outsourcing as a Corporate Governance Tool

10 Management of Information

10.1 Introduction

10.1.1 General Remarks

10.1.2 Information and Information Economics

10.1.3 Dealing with Information Problems

10.1.4 The Role of Legal Rules on Information

10.1.5 Corporate Finance Law, Information, the Firm

10.2 Information Management in Corporate Finance Law

10.2.1 Introduction

10.2.2 Information Delivery Chain

10.2.3 Legal Tools and Practices: General Remarks

10.3 Legal Tools and Practices: Investment in Information

10.3.1 General Remarks

10.3.2 Automation, Standardisation

10.3.3 Separate Decisions, Contracts

10.4 Legal Tools and Practices: Incoming Information

10.4.1 Introduction

10.4.2 Transfer of Risk

10.4.3 Intermediaries, Improving Information Quality

10.4.4 Creating Incentives

10.4.5 Screening of Potential Intermediaries

10.4.6 Identifying Good Intermediaries

10.4.7 Identifying Bad Incentives

10.4.8 Being Optimally Informed

10.4.9 Mitigating the Risk of Attribution of Information

10.5 Legal Tools and Practices: Outgoing Information

10.5.1 Introduction

10.5.2 Keeping Information Secret

10.5.3 Benefiting from Superior Information

10.5.4 Increasing the Perceived Usefulness of Information

10.5.5 Management of Reputation

10.5.6 Establishing or Restricting Communication

10.6 Analysis of Rights and Duties Relating to Disclosure

10.7 Community Law

10.7.1 Introduction

10.7.2 Main Policy Choices

10.7.3 Regulation of the Quality of Financial Information

10.7.4 Regulation of Intermediaries: General Remarks

10.7.5 Information Analysts Outside the Target

10.7.6 Information Analysts Inside the Target

10.7.7 Information Analysts Inside the Firm

10.7.8 Regulation of Outgoing Information Otherwise

References