Even the Glom faithful may well have forgotten, but way back in August I promised a 3-part series on SPACs, the fruits of a recent article I co-authored with Mike Stegemoller. The first post focused on IPO underpricing, and the second on the underwriting discount. With this post, I'll conclude by shifting to the second phase of a SPAC's lifecycle: the acquisition.
Once the SPAC is up and running, it has a limited amount of time to identify a target and negotiate a deal. Once that's done, the SPAC announces the proposed acquisition to the market, and SPAC shareholders have a chance to veto the deal or (as the form evolved) exit if they disapprove of the acquisition.
The finance literature has focused much attention on the effect of an acquisition announcement on the acquiror's stock, generally trying to answer the question whether acquisitions are positive for the acquiring firm's shareholders or represent something deleterious, like costly empire building.
Generally in an acquisition, where a typical firm buys another typical firm, there's a lot going on that is embedded in the market's reaction to the acquisition announcement. For example, the change in the acquiring firm's stock price may contain information about overpayment because of hubris (driving the stock price down). In addition, and pushing in the opposite direction, stock price returns could reflect synergies that make the deal worth doing, even if in the presence of some overbidding. Further, the synergy value is hard to quantify, as is the question of how much of the synergy value is split between the target and the acquiror.
Enter the SPAC. An empty shell, it offers no synergy value to a target. Empire building should not drive the managers, many of whom will be replaced if and when the deal goes through. Even if some of the SPAC managers suffer from hubris, the shareholder voice on the ultimate acquisition serves as a corrective. Given the reduction in potential managerial agency costs, we hypothesized that SPACs overbid for targets less than typical firms. Thus, if acquirer returns for SPACs are higher than those of traditional acquirers, that finding tells us something about mispricing in typical acquisitions: they tend to contain detrimental components that reduce the value to acquiring shareholders, even given the potential for synergies.
Our results: SPACs acquirers experience higher returns than traditional acquirors in a time and industry matched sample. Which suggests that in typical acquisitions, even if there are gains to be had from synergies between the firms, there are also losses that may outweigh those gains. In other words, we offer new evidence that traditional acquirors tend to overbid.
Conglomerate readers interested in consumer financial protection should check out the Insurance law Section Program at the AALS Annual Meeting on Sunday, January 6th from 10:30 am to 12:15 pm, which will cover consumer protection issues. Speakers include:
- Joshua Teitelbaum, Georgetown University Law Center (Moderator);
- Shawn Cole, Harvard Business School;
- Kyle Logue, University of Michigan Law School;
- Lauren Willis, Loyola Law School (Los Angeles);
- Daniel Schwarcz, University of Minnesota Law School; and
- Orly Lobel, University of San Diego Law School
I have a short piece up today in the Harvard Business Law Review Online. For me it represents a nice bridge between SPACs, which have taken up a great deal of my attention for the past 2 years, and a new piece I've been working on this summer. More on the latter as soon as I can polish up a draft!
As always, thoughts are welcome.
It is not too early to start thinking about the 2013 AALS Annual Meeting in New Orleans in January. The Securities Regulation and Financial Institutions & Consumer Financial Services sections have joined forces to put together a Joint Program on the “The Regulation of Financial Market Intermediaries: The Making and Un-Making of Markets” on Friday, January 4th from 2 pm to 5 pm.
The program will give us a chance to look at the intersection of capital markets and financial institution regulation, a sweet spot that was overlooked until the global financial crisis hit. The program will include a panel of scholars who have been looking at this intersection for quite a while, including, Onnig Dombalagian (Tulane), Claire Hill (Minnesota), Tamar Frankel (Boston University), Donald Langevoort (Georgetown), Geoffrey Miller (NYU), David Zaring (Univ. of Pennsylvania – Wharton School of Business), David Min (UC Irvine and author of How Government Guarantees in Housing Finance Promote Stability) and Kimberly Krawiec (Duke) (Moderator).
The program will also include the following four papers picked from a large response to our Call for Papers:
- “The Federal Reserve’s Use of International Swap Lines,” Colleen M. Baker (Notre Dame);
- “Investment Company as Instrument: The Limitations of the Corporate Governance Regulatory Paradigm,” Anita K. Krug (Univ. of Washington); and
- “The Case for Decentralizing Financial Oversight: A Strategy for Overseeing the Derivatives Industry,” Jeffrey Manns (George Washington Univ.).
Saule Omarova (North Carolina) will moderate the call for papers panel.
It seems again to be the season for law journal members to pick and start writing their student notes. After doling out the same advice several times, I want to revisit and re-frame a post from last year on common pitfalls in selecting and writing the note and how to avoid them. Also sprach Polonius:
1. Spend more intellectual energy up front carefully framing the question you are asking and answering. The advantage of a note over law school assignments is that you get to frame the question you are addressing. Use this ability to your advantage…
2. Narrower and deeper topics tend to work better: Many students start out with broad topics that interest them, but don’t devote enough time to sharpening, clarifying, and narrowing the question until too late in the process. This runs a high risk of getting bogged down in an impossibly broad reading list, which raises the difficulty of moving from research to writing. Broad topics tend to lead to either superficial analysis or to a never-ending quest to become an expert on a wide range of issues. Narrower topics may also provide better writing samples by focusing on the depth and quality of legal analysis rather than coverage of a wide swath of issues.
3. Indulge your curiosity: At some point in the writing process you will hate the note. So it is better to start off with something that really piques your curiosity. Think of this project as a way to teach yourself about something strange.
4. Do the literature search early: Otherwise, you run the risk of finding out late in the process that you have been preempted.
5. Revisit the framing of the question often: Writing about current topics can be fun, but you face several risks, including having events overtake you or being preempted by another scholar. Or you may find too much or too little literature out there on the topic. If any of this occurs, think about how to reframe the question you are asking to work with what you have.
6. Outline early: By outline, I mean more than a collection of nouns strung together, but rather complete sentences. Writing in sentences early on forces you to clarify your analysis and will reveal gossamer ideas that won’t hold up well later in the process. It also eases the transition from outlining to actual writing.
7. Don’t procrastinate: Trying to wait for a clear moment in your schedule to do your research and writing will mean you are going to cram at the end, resulting in a subpar product. Bear down. The sooner and more often you put words onto paper, the lower the psychological barriers to writing will be.
As in a bad horror movie (or a great Rolling Stones song), observers of the current crisis may have been disquieted that one of the central characters in this disaster also played a central role in the Enron era. Is it coincidence that special purpose entities (SPEs) were at the core of both the Enron transactions and many of the structured finance deals that fell part in the Panic of 2007-2008?
Bill Bratton (Penn) and Adam Levitin (Georgetown) think not. Bratton and Levin have a really fine new paper out, A Transactional Genealogy of Scandal, that not only draws deep connections between these two episodes, but also traces back the lineage of collateralized debt obligations (CDOs) back to Michael Millken. The paper provides a masterful guided tour of the history of CDOs from the S&L/junk bond era to the innovations of J.P. Morgan through to the Goldman ABACUS deals and the freeze of the asset-backed commercial paper market .
Their account argues that the development of the SPE is the apotheosis of the firm as “nexus of contracts.” These shell companies, after all, are nothing but contracts. This feature, according to Bratton & Levin, allows SPEs to become ideal tools either for deceiving investors or arbitraging financial regulations.
Here is their abstract:
Three scandals have fundamentally reshaped business regulation over the past thirty years: the securities fraud prosecution of Michael Milken in 1988, the Enron implosion of 2001, and the Goldman Sachs “Abacus” enforcement action of 2010. The scandals have always been seen as unrelated. This Article highlights a previously unnoticed transactional affinity tying these scandals together — a deal structure known as the synthetic collateralized debt obligation (“CDO”) involving the use of a special purpose entity (“SPE”). The SPE is a new and widely used form of corporate alter ego designed to undertake transactions for its creator’s accounting and regulatory benefit.
The SPE remains mysterious and poorly understood, despite its use in framing transactions involving trillions of dollars and its prominence in foundational scandals. The traditional corporate alter ego was a subsidiary or affiliate with equity control. The SPE eschews equity control in favor of control through pre-set instructions emanating from transactional documents. In theory, these instructions are complete or very close thereto, making SPEs a real world manifestation of the “nexus of contracts” firm of economic and legal theory. In practice, however, formal designations of separateness do not always stand up under the strain of economic reality.
When coupled with financial disaster, the use of an SPE alter ego can turn even a minor compliance problem into scandal because of the mismatch between the traditional legal model of the firm and the SPE’s economic reality. The standard legal model looks to equity ownership to determine the boundaries of the firm: equity is inside the firm, while contract is outside. Regulatory regimes make inter-firm connections by tracking equity ownership. SPEs escape regulation by funneling inter-firm connections through contracts, rather than equity ownership.
The integration of SPEs into regulatory systems requires a ground-up rethinking of traditional legal models of the firm. A theory is emerging, not from corporate law or financial economics but from accounting principles. Accounting has responded to these scandals by abandoning the equity touchstone in favor of an analysis in which contractual allocations of risk, reward, and control operate as functional equivalents of equity ownership, and approach that redraws the boundaries of the firm. Transaction engineers need to come to terms with this new functional model as it could herald unexpected liability, as Goldman Sachs learned with its Abacus CDO.
The paper should be on the reading list of scholars in securities and financial institution regulation. The historical account also provides a rich source of material for corporate law scholars engaged in the Theory of the Firm literature.
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I am getting ready to teach MGM v. Scheider next week in Contracts. The case (347 N.Y.S.2d. 755) involves whether a series of communications between a Hollywood studio and actor Roy Scheider (who would later star in JAWS) constituted a contract that bound the star to act in an ABC tv series. [Note: should any of my contract students read this post, the foregoing is not an example of a good case brief.]
When going over the aftermath of this case in class, the inevitable question comes up: “Why didn’t the lawyers insist on a more formal, written, and executed contract?” The same answers surface: sloppiness, lack of sophistication, time pressure. It makes for an easy moral for law students (“be tougher and more careful”), but one that I find increasingly less satisfying and nutritious. Sloppiness just seems too pat an answer to explain this or many of the other lawyer “mistakes” that populate a Contracts case book.
Fortunately, Jonathan Barnett (USC Law) has a new working paper that provides a much more nuanced answer. Barnett’s “Hollywood Deals: Soft Contracts for Hard Markets” explores why many contracts between Hollywood studios and star level talent (both sides usually represented by experienced lawyers) fall into this netherworld of “soft contracts” – that is agreements of questionable status as enforceable contracts. Barnett’s explanation involves both parties navigating two different risks – project risk (the risk a film won’t happen or will flop) and hold-up risk (the risk that a necessary party to a film will back out, possibly to hold the project hostage). The studio system used to provide a way to balance these two risks. The decline of this sytem, according to Barnett, gave rise to a growing use of “soft contracts.” Here is the abstract:
Hollywood film studios, talent and other deal participants regularly commit to, and undertake production of, high-stakes film projects on the basis of unsigned “deal memos,” informal communications or draft agreements whose legal enforceability is uncertain. These “soft contracts” constitute a hybrid instrument that addresses a challenging transactional environment where neither formal contract nor reputation effects adequately protect parties against the holdup risk and project risk inherent to a film project. Parties negotiate the degree of contractual formality, which correlates with legal enforceability, as a proxy for allocating these risks at a transaction-cost savings relative to a fully formalized and specified instrument. Uncertainly enforceable contracts embed an implicit termination option that provides some protection against project risk while maintaining a threat of legal liability that provides some protection against holdup risk. Historical evidence suggests that soft contracts substitute for the vertically integrated structures that allocated these risks in the “studio system” era.
The very accessible paper is worth a read – not only for Contracts scholars and teachers, but also for those interested in the theory of the firm. For a different, stimulating approach to supplementing the teaching of contracts (Hollywood and otherwise), Larry Cunningham’s new book, Contracts in the Real World: Stories of Popular Contracts and Why They Matter is out from Cambridge University Press. Larry gave a preview of the book and his approaching to teaching the subject in our Conglomerate forum on teaching contracts last summer. The book is chock full of very useful stories on chestnut casebook opinions, as well as contracts straight out of Variety involving stars from Eminem to Jane Fonda.
Last week I posted the first of a three-part series on my new article with Mike Stegemoller on SPACs. In this post I'll discuss our second finding, which relates to underwriter discounts, or the gross spread. In a normal IPO, the nominal way an underwriting bank makes money is by buying stock from the company at a discount, and then turning around and selling it to the public at full price. The difference, or "spread" between the purchase price and the sale price, is the investment bank's official compensation for bringing the fledgling firm to market. Some scholars would point to underpricing--and the banks' corresponding ability to curry favor with client--as the true compensation for underwriting, but we covered underpricing last week.
What do underwriters do to earn their discount? Well, they expend a lot of effort trying to value the firm correctly (I'm looking at you, Morgan Stanley), because in a firm-commitment offering they take on the "risk" that they won't be able to unload the shares they buy from the company and offer to the public. "Risk" is in quotation marks because the underwriters build a "book" of pre-sale offers of interest, and generally won't agree to take the firm public without being sure all of its shares will sell. The underwriter does face a real risk of liability for false statements in the offering documents, however, and the spread may also compensate the bankers for this risk.
A curious fact about traditional U.S. IPOs is that the gross spread is sticky--underwriters almost always buy company shares at a 7% discount, as documented in this fabulously named Chen Ritter paper, shouting out to Sherlock Holmes, no less. As Chen & Ritter, describe, the clustering of spreads around 7% is 1) a relatively recent phenomenon, 2) specific to the U.S., and 3) roughly twice as high as in other countries.1
Suspicious. After all, shouldn't some firms be riskier to underwrite than others, and thus command a higher spread? And others by the same token be surer bets, with a correspondingly smaller spread? Chen and Ritter conclude that most spreads for firms over $30 million are above competitive levels and discuss explanations ranging from implicit or explicit collusion to reducing underpricing.
SPACs, essentially piles of cash, should be easier to value than the typical company. The information asymmetries that characterize the average company just aren't there. Moreover, bookbuilding should be an easier process because there isn't much of a "story" needed to persuade potential customers to buy. By the same token, SPACs should be less risky to underwrite, since the trust fund creates a floor price below which the stock should not drop. As a shell company, disclosures are boilerplate and close to risk-free for the underwriter. So we hypothesize that the spread should be lower than 7%.
Yet the mean and median underwriting discount for our sample is 7%. We argue this offers further evidence that spreads are above competitive levels. Moreover, as the SPAC form evolved, investment banks began to accept a portion of the spread as deferred compensation. Meaning that the nominal discount remained 7%, but some of that cash was tied up in escrow, and only released to the bank if and when a subsequent acquisition occurred. The fact that the SPAC underwriting discount initially clustered around 7%, but all of the banks quickly proved willing to sacrifice nearly half of their compensation, without demanding any increase in overall spread as compensation for the delay in payment, is further evidence that a 7% spread is not the product of a competitive market. In other words, if competition is fierce enough, underwriters can apparently operate at spread levels much lower than 7%.
That sticky 7% is looking curiouser and curiouser...
1 The Chen Ritter study is from 2000, but Abrahamson, Jenkinson, and Jones (2011) confirm their findings.
And now for a little law professor inside baseball. For personal reasons I have found myself enveloped in the August submission cycle, which is a little more mysterious than the spring. Be that as it may, I have been quite pleased with the offers that have come in, and should reach a final decision soon.
There's been blogosphere buzz about a new entrant to the submissions business, long dominated by ExpressO. Being old enough to remember the pain of submitting articles via snail mail (mail merge, anyone?), I have found ExpressO a pure delight, offering easy quick electronic service at negligible cost. The new kid on the block is Scholastica, and it scored a coup by nabbing the California Law Review and the Chicago Law Review as early adopters. See blog posts from Dan Filler at the Faculty Lounge,Gerard Magliocca at ConOp, and Jesse Hill at Prawfs. In a comment to the last post, a founder of Scholastica writes:
Scholastica provides powerful software that goes beyond ExpressO's submission/distribution service, all at no additional charge to the journal – so journals of all sizes/rankings can easily have software to make the start-to-finish journal management process easier.
Journals using Scholastica get more than just article submission; they get an entire platform for efficiently running their journal, from submissions to reviews to decisions to copyediting to publishing – again, at no charge to the journal. We also give law reviews flexibility to be part of the standard law review submission pool or they can operate as a standalone single/double blind peer reviewed journal. They can also publish open-access content online with just a few clicks.
Hmm, appealing to the law reviews as a kind of one-stop shop? It will be interesting to see how this market shake-up plays out. I offer but one small insight from a new customer.
Professors who play the game know that myriad rejections are one price of admission. Even articles that wind up at the likes of Harvard Law Review garner, through the natural course of things, dozens of rejection emails. The wording of these emails varies, but they share a few points in common:
1. Thank you for your submission.
2. Each year we receive thousands of articles and can only select a few for publication.
3. After careful consideration, we have decided we cannot accept your article.
4. We hope you will consider us for submissions in the future.
Here was the email I received from the Chicago Law Review via Scholastica:
Think of the roller coaster of emotions. First, the email's subject line creates a sense of anticipation: oooo, a decision has been reached! What will it be? And then, upon opening the email in question, harsh reality, in 2 terse, bolded words. Decision: Reject.
What do you think? Admirably to-the-point? Unduly harsh for the tender of ego, particularly the young assistant prof or prof-wannabe?
The more I look at the email the funnier it gets.
Call for Papers
AALS Joint Program of the Securities Regulation Section and
Financial Institutions & Consumer Financial Services Section
The Regulation of Financial Market Intermediaries:
The Making and Un-Making of Markets
AALS Annual Meeting, January 4, 2013
The AALS Section on Securities Regulation and the Section of Financial Institutions & Consumer Financial Services are pleased to announce that they are sponsoring a Call for Papers for their joint program on Friday, January 4th at the AALS 2013 Annual Meeting in New Orleans, Louisiana.
The topic of the program and call for papers is “The Regulation of Financial Market Intermediaries: The Making and Un-Making of Markets.” The financial crisis witnessed numerous market failures involving an array of financial market intermediaries, including banks, broker dealers, and various kinds of investment funds (from money market mutual funds to hedge funds). The crisis came at the end of a decades-long transformation of the U.S. financial services sector that blurred the boundaries between banking and securities businesses. During this period a range of new intermediaries emerged and connected individuals and firms seeking financing to investors in capital markets. At the same time, capital markets became increasingly dominated by financial institutions and other institutional investors. Intermediaries devised and “made markets” for new and often highly illiquid and opaque financial instruments. Many of these new markets froze or crashed in the financial crisis. In response, Dodd-Frank and other financial reforms have imposed a grab bag of new rules on financial intermediaries.
Yet the effects of these financial reforms remain unclear. Moreover, policymakers and scholars often disagree about the precise problems that these reforms are meant to address. For example, the SEC’s headline-grabbing suit against Goldman Sachs over the ABACUS transactions focused on conflicts of interest for large financial conglomerates with different stakes in a transaction. Meanwhile, other financial reforms have focused on the opacity of pricing in financial markets or on the solvency or liquidity risk faced by intermediaries.
The tangle of potential market failures has led to a range of policy responses. Often banking and securities scholars seem to look at the same set of market practices through radically different lenses. Banking scholars focus on solvency crises and banking runs and debate the application of prudential rules on the risk-taking, leverage, and liquidity of intermediaries. At the same time, securities scholars emphasize the problems of conflicts of interest and asymmetric information. They then look to the traditional policy tools in their field such as disclosure, fiduciary duties, and corporate governance.
The dearth of dialogue between these two fields creates the risk of confusion in identifying both problems and solutions for financial intermediaries and the markets in which they operate. To move the discussion forward, scholars in both fields may have to move outside their comfort zones. The study of financial institutions cannot be limited to deposit-taking banks. Similarly, securities regulation involves more than securities offerings and litigation, but the regulation of broker-dealers, investment advisers and funds, and the regulation of trading and markets.
Form and length of submission
The submissions committee looks forward to reviewing any papers that address the foregoing topics. Abstracts should be comprehensive enough to allow the review committee to meaningfully evaluate the aims and likely content of papers they propose. Eligible law faculty are invited to submit manuscripts or abstracts dealing with any aspect of the foregoing topics. Untenured faculty members are particularly encouraged to submit manuscripts or abstracts.
The initial review of the papers will be blind. Accordingly the author should submit a cover letter with the paper. However, the paper itself, including the title page and footnotes must not contain any references identifying the author or the author’s school. The submitting author is responsible for taking any steps necessary to redact self-identifying text or footnotes.
Papers may be accepted for publication but must not be published prior to the Annual Meeting.
Deadline and submission method
To be considered, papers must be submitted electronically to Erik Gerding at email@example.com. The deadline for submission is August 10, 2012.
Papers will be selected after review by members of a Committee appointed by the Chairs of the two sections. The authors of the selected papers will be notified by September 30, 2012.
The Call for Paper participants will be responsible for paying their annual meeting registration fee and travel expenses.
Full-time faculty members of AALS member law schools are eligible to submit papers. The following are ineligible to submit: foreign, visiting (without a full-time position at an AALS member law school) and adjunct faculty members, graduate students, fellows, non-law school faculty, and faculty at fee-paid non-member schools.
Please forward this Call for Papers to any eligible faculty who might be interested.
In addition to blogging about social enterprise, I plan to blog a bit about being a new law professor. To start, I decided to interview (via e-mail) my friend Sabrina Ursaner about something important to law professors – the law review submission process. The focus will be on the article selection process of corporate law specialty journals, though much of Sabrina's advice can be applied more broadly.
Currently, Sabrina is an M&A associate at Davis Polk & Wardwell. She also clerked for former-Chancellor William B. Chandler III of the Delaware Court of Chancery. I met Sabrina when I was clerking for former-Vice Chancellor Stephen P. Lamb and she was an intern for the court.
Sabrina was the Editor-in-Chief of the NYU Journal of Law & Business from 2009-2010 and was actively involved in the article selection process. My interview mimics, in some respects, the helpful series of posts/interviews on PrawfsBlawg by Professor Shima Baradaran. Despite the wealth of information on PrawfsBlawg, I thought that Sabrina’s advice might be of interest to Glom readers because corporate law specialty journals do some things differently than generalist journals.
The interview is below the fold.
1. Please provide the readers with a brief description of the NYU Journal of Law & Business (“JLB”).
The JLB is a specialty journal at NYU focusing on law and business, as its title suggests. The journal has two main functions: (1) it publishes 2 issues a year – generally one fall issue around November/December and one spring or summer issue depending on the publication schedule that year, and (2) it holds an annual symposium in January and publishes edited transcripts of the symposium proceedings in the spring/summer issue.
Each issue contains academic articles (written by law professors), practitioner pieces (written by practicing lawyers, whether in private practice, government, etc.), and student notes (written by JLB students who participate in the journal’s note-writing program). The juxtaposition of academic pieces with practitioner pieces helps keep the JLB at the cutting edge of law and business, and focused on issues that are not only interesting areas of the law, but hot topics that are evolving today.
Also, while the JLB is student-run, I would be remiss if I didn’t mention our fantastic faculty advisors, including former-Chancellor William Allen and Professor Marcel Kahan, whose advice and support have helped make the journal what it is today. In addition, Dean Revesz and the NYU Law administration are extremely supportive of all of the Law School's journals, providing funding, space for events, publicity, encouragement, and more.
2. Please briefly explain the JLB’s law review article submission process.
The JLB takes a somewhat more pragmatic and flexible approach to the review process than what I’ve heard about some law review selection processes. The JLB board has four executive editors: academic articles, practitioner notes, submissions and selection, and student notes. All four of them, plus the EIC, receive Expresso emails and submissions that go to the firstname.lastname@example.org address. Often practitioner pieces don’t come through the usual channels, but somehow they need to get into the hands of those five (the EIC and the four executive editors). Generally each executive editor is responsible for managing the review process for his “type” of article, and the “submissions and selection” editor keeps track of submissions and offers and generally helps out with the review process. The EIC plus the four executive editors essentially make up the entire review committee. If any of the five likes an article, that person forwards it to the others to review. If an additional person likes it but the group is on the fence, the article is assigned to a committee to read. A committee read may not be necessary if the EIC and executive editors are all in agreement and feel strongly that they want to make an offer. The process can range from a few days or less to several weeks depending on the article.
3. I see your submission deadlines are 9/15 and 1/15 for your two issues, when is the ideal time of the year to submit to JLB?
Those aren’t hard deadlines. The dates are actually pretty flexible (particularly the 1/15 deadline for the spring issue), but it is certainly true that most of the fall articles are selected before 9/15. The typical March submission flood is generally where we fill our fall issue (the academic articles at least). Because the JLB focuses on timely pieces that often relate to recent cases or regulatory events (i.e. the Volcker rule, recent Delaware rulings by the Court of Chancery that may be on appeal), it often makes sense for us to wait until a bit later in the summer to fill the fall issue, but we try to get at least a few articles nailed down from the March submissions. I think the best time to submit is late March or April, but I’d say really anytime through June or even early July is still worth a shot. For the spring/summer issue, articles are accepted all fall, but there are often last minute opportunities so unlike typical law reviews that have a set number of articles, it’s worth contacting the editors to see if the issues are full.
4. Approximately how many submissions does your journal receive each year? Approximately how many offers are given?
In the last 4 years, we have received approximately 400-500 submissions each year, and we’ve made offers to approximately 2-5% of those. Those are generally unsolicited submissions from ExpressO and sent to the submissions email address.
We also directly solicit some of the articles we publish (particularly the practitioner pieces – i.e., if we see a recent client memo or blog post that seems interesting, we may contact the author and ask if they are interested in turning it into a short article or piece for the JLB). For example, Bradley Sabel and Gregg Rozansky published an article based in part on client memoranda about the Volcker Rule, and Francis Pileggi and Kevin Brady published an article based on a few of their “Key Delaware Corporate and Commercial Decisions” blog posts.
5. How important is the cover letter/CV and how can a candidate help his or her chances through the cover letter/CV?
Extremely important – the cover letter is literally the most important part of the submission, because with a weak or poorly written cover letter, your article probably will not be seen. Interestingly, I saw an interview with a past EIC of Stanford Law Review who mentioned that their committee’s review process is blind. The JLB’s process is quite the opposite – it is clear from ExpressO and email submissions who the author is, and the CV and cover letter were always the first thing we opened. They gave a glimpse into the article and often were what caught our attention to focus on a particular article. In addition, if we didn’t know the author submitting the paper, the CV gave us quick insight into their career and past publications.
6. What did you look for in an article and author?
Personally, the very first thing I looked for was a good title – usually because it was in the subject of the email. A good title could make a submission jump to the top of my reading list in an otherwise full email inbox.
Cover letter is next. I read every single cover letter that was submitted. That is your one page chance to quickly summarize the article in a sentence or two, explain why would it be a good fit for the JLB, and tell us why we should publish it. Some cover letters went out of their way to explain why they thought a specialty journal was a good fit, and even personalized it to the JLB – that’s a great move. Some had obvious typos and seemed to have been thrown together hastily – even if your article is amazing, that’s a surefire way not to get it seen.
Substantively, what do we look for in articles? Interesting, relevant topics. Recent developments in Delaware case law. Hot issues in corporate governance. Deal trends in the M&A world. Cross-border issues. Federal securities law. SEC and financial crisis-related rulemaking. The list goes on.
As far as the writing, once you make it past that initial screening (topic, cover letter, etc.), we basically looked for articles that we could comfortably work with. Here’s an example of what I mean by that – the footnotes don’t have to be perfect (that’s what the cite-checking process is for), there is no drop-dead length that is too short or too long, and we expect to see at least a few substantive issues that we would want to work through with the author. But on the whole, we are fairly deferential on substance and author writing preferences/style, so while we do give substantive and big picture edits in addition to line edits, the writing has to be such that it would not require a significant reworking of the article before we would be happy publishing it.
7. What are some of the shortcuts used to identify good articles?
One quick shortcut for me was when we received a request for expedited review because the article had received an offer from another journal. Bare requests for expedition generally didn’t help (i.e., just saying that you have another offer). If, however, the expedition request specified that the article had received an offer from one of our peer or competitive journals (i.e., a different business journal), we generally would immediately skim it and decide whether it was worth sending to committee read or whether we wanted to make an offer. I always carefully reviewed articles that had received offers from the Delaware Journal of Corporate Law, the U. Penn. Journal of Business Law, Columbia Business Law Review, and a number of other corporate and business journals (U.C. Davis, Northwestern, several others that I’m sure I’m forgetting here…).
8. How did law professor blogging factor into your decision making process, if at all?
I would say that law prof blogging does factor into the decision-making process, and that a blogging presence definitely helps. For example, you asked about shortcuts we use to identify good articles – one easy shortcut is if we already know the author and are familiar with his/her writing and topics of interest.
Actually, I have a funny story about this that relates to one of the Conglomerate bloggers! The year I was EIC, we received a submission from Afra Afsharipour. I believe she was guest blogging on the Glom at the time, and right around the time we received the submission, I had just read a few of her posts and was already interested in the paper. We made an offer in a matter of days, and she may not remember this, but I recall emailing with Afra about her blogging presence because I had really enjoyed one of her posts! In the end, she received an offer to workshop the paper, and I’m not sure where it was ultimately published, but it was one of the articles we really tried hard to get.
In short, I think blogging is a great way for professors – especially junior professors – to get their names and ideas out there.
9. Any final thoughts for us?
Two points I would urge professors to think about when considering whether to publish in a generalist journal versus a specialty journal (in this case, business and corporate journals, but I think these factors would apply to other specialty journals as well for professors in those areas of law):
One, readers of journals like the JLB tend to be regular readers because of their business focus, and thus they make an excellent audience for academics who want to use scholarly journals as a way to affect the professional discourse.
Two, the students on these journals (often) have a specific interest in the subject matter that you are writing on. While law reviews and other generalist journals may take one or two corporate articles per issue or per year, business journals are only looking for those types of articles, on a wide range of corporate topics. When I was EIC, we tried to assign editing responsibilities based in part on the interests of the student editors, and in my experience, that helped keep students personally engaged in the editing process.
Obviously, there are numerous reasons to publish in a generalist journal as well – these are just two considerations to keep in mind, particularly for one-off articles that may be too narrowly-focused for a law review but may be well-suited for a specialty business journal.
10. Thank you for sharing with us, Sabrina. I found it very helpful and I am sure the readers did as well.
Thanks for having me! I’m a big fan of the Glom, so this has been fun.
The 2011 symposium edition of the Berkeley Business Law Journal on Dodd-Frank is out. I would like to thank the editors and the Berkeley Center for Law, Business and the Economy for inviting me to a great conference. My contribution, Credit Derivatives, Leverage, and Financial Regulation’s Missing Macroeconomic Dimension is now up on ssrn. Here is the abstract:
Of all OTC derivatives, credit derivatives pose particular concerns because of their ability to generate leverage that can increase liquidity - or the effective money supply - throughout the financial system. Credit derivatives and the leverage they create thus do much more than increase the fragility of financial institutions and increase counterparty risk. By increasing leverage and liquidity, credit derivatives can fuel rises in asset prices and even asset price bubbles. Rising asset prices can then mask mistakes in the pricing of credit derivatives and in assessments of overall leverage in the financial system. Furthermore, the use of credit derivatives by financial institutions can contribute to a cycle of leveraging and deleveraging in the economy.
This Article argues for viewing many of the policy responses to credit derivatives, such as requirements that these derivatives be exchange traded, centrally cleared, or otherwise subject to collateral or 'margin' requirements, in a second, macroeconomic dimension. These rules have the potential to change – or at least better measure – the amount of liquidity and the supply of credit in financial markets and in the 'real' economy. By examining credit derivatives, this Article illustrates the need to see a wide array of financial regulations in a macroeconomic context.
Understanding credit derivatives’ macroeconomic effects has implications for macroprudential regulatory design. First, regulations that address financial institution leverage offer central bankers new tools to dampen inflation in asset markets and to fight potential asset price bubbles. Second, even if these regulations are not used primarily as monetary or macroeconomic levers, changes in these regulations, including changes in the effectiveness of these regulations due to regulatory arbitrage, can have profound macroeconomic effects. Third, the macroeconomic dimension of credit derivative regulation and other financial regulation argues for greater coordination between prudential regulation and macroeconomic policy.
Comments by e-mail are always welcome.
Plagiarism is a hard word to spell, but that doesn't necessarily make it a disease or a medical condition. However, one confessed plagiarist, Quentin Rowan, is comparing his habit of blatant copying to alcoholism and other addictions. In light of the recent Rowan kerfuffle, in which he published a spy novel that lifted literally pages from famous spy novels, Salon has a debate concerning the definition of "plagiarism."
I was lured to read because I wanted to see what the experts thought the definition of plagiarism is. Having had to witness too many students put through the wringer who claimed that no one ever told them what plagiarism was, I have to admit I think we are good at telling folks that plagiarism is wrong (or a violation of the honor code), but even better at assuming that everyone has already been told by someone else what plagiarism is. I've also seen this with academics, too. I've been told that in some areas of legal scholarship many articles contain almost stock explanations of traditional arguments, with the same cites in the same order. I've been told by others that this is just wrong. Most of the experts on Salon were also in the "everyone knows what plagiarism is" camp -- just repeating that it is the presentation of someone else's words or ideas without attribution. The experts do agree that some plagiarism is unintentional and that one can misremember whether ideas were one's own or anothers.
But, the interesting event that spawned the debate answers some questions for me. I have always wondered what could possibly be the mindset of someone who steals another's words and passes them off as her own, for a grade or for profit. I've always thought that the plagiarist must rationalize this to themselves, possibly by assuming that everyone else does it or that this is just the way things are done. Perhaps in a school setting, a student could convince herself that a teacher was so hard or so unfair that plagiarism was the only way to succeed under a rigged system. Writing a novel, though, doesn't lend itself to those arguments. Perhaps plagiarism is just another risky behavior that creates a sense of danger and excitement for the writer. Hopefully, I'll never know firsthand.
The Section on Financial Institutions and Consumer Financial Services will have a record four events at this weekend's Association of American Law Schools Annual Meeting in Washington, DC. The theme is rethinking and reviving the field of financial institutions on the ground and in the academy. We will take stock of reforms so far and consider the impact of the crises in the United States and Europe, but also will take a long-term view of the field from diverse theoretical, policy, and methodological perspectives.
The program begins on Saturday morning (10:30 am-12:15 pm, Marriott Wardman Park, Thurgood Marshall North - Mezzanine Level) with a big-think "revival" panel featuring Jill Fisch (Penn), Howell Jackson (Harvard), Kim Krawiec (Duke), Pat McCoy (Connecticut, recently at Consumer Financial Protection Bureau), Katharina Pistor (Columbia), and Annelise Riles (Cornell).
Next comes an offsite event at American University starting at 4 pm (separate registration required). This event will include a policy roundtable on moderated by Adam Feibelman (Tulane), with regulators and policy makers from different agencies, as well as a paper presentation.
The weekend will conclude on Sunday with a panel presentation of four scholarly papers (9 - 10:45 am - Maryland Suite A, Lobby Level). Heidi Schooner will moderate the Call for Papers panel.
Full program details are here.
Here are links to the selected papers, authors, and commentators (as well as my prior blog posts introducing the papers):
Anat R. Admati, Peter Conti-Brown, & Paul Pfleiderer, Liability Holding Companies (presented by Peter Conti-Brown (Stanford), comments by Saule Omarova (North Carolina)) (my introductory blog post)
Eric Chaffee (Dayton) & Geoffrey C. Rapp (Toledo), Regulating On-line Peer-to-Peer Lending in the Aftermath of Dodd-Frank (comments by Andrew Verstein (Yale)) (my introductory blog post)
Anita K. Krug (Univ. of Washington), Institutionalization, Investment Adviser Regulation, and the Hedge Fund Problem (comments by Kristin N. Johnson (Seton Hall)) (my introductory blog post)
Wulf A. Kaal (St. Thomas) & Christoph Henkel (Mississippi College School of Law), Sequential Contingent Capital Triggers in Europe and the United States (comments by Mehrsa Baradaran (BYU))(my introductory blog post)
This is the fifth and final installment of a series of previews of the papers being presented at the AALS Financial Institutions & Consumer Financial Services Section events this weekend. This final paper will be presented at a special off-site event starting at 4 pm on Saturday at American University. (See here for details on the full weekend of Financial Institutions/Consumer Financial Services Section events).
Peter Conti-Brown (Academic Fellow, Stanford Law, Rock Center for Corporate Governance) will present, Liability Holding Companies, a paper he co-authored with Anat Admati and Paul Pfleiderer (both of Stanford’s Graduate School of Business). To understand this paper, it helps to read an earlier, influential paper by Admati, Pfleiderer, and a number of co-authors on which it builds. This earlier work, Fallacies, Irrelevant Facts, and Myths in the Discussion of Capital Regulation: Why Bank Equity is Not Expensive, countered criticisms of higher capital requirements. That earlier paper responded to charges that higher capital requirements would impose large social costs, including reducing bank lending.
Yet in Liability Holding Companies, Conti-Brown and his co-authors admit that bank debt may have some benefits; creditors may monitor and discipline bank management. To balance this disciplinary benefit against reducing the social costs of excessive bank leverage (financial institution fragility, systemic risk, increased risk of bailouts), Admati, Conti-Brown, and Pfleiderer propose a regulatory innovation. Here is their abstract:
An international debate continues to unfold in banking law, corporate governance, and finance on whether the capital structure of the world’s largest financial institutions is too heavily dependent on debt, too little on equity. Two of us, with co-authors, have argued elsewhere that there is no socially beneficial purpose for this over-reliance on debt and, indeed, that such reliance increases the likelihood of taxpayer bailouts, with their associated economic, financial, and social costs. Some academics and bankers continue to insist, however, that increased equity is costly for banks and for society. The arguments proffered in defense of these propositions contradict the most basic insights from corporate finance, and often neglect to distinguish private costs from social costs in explaining their preference for debt-heavy capital structures.
While there are overwhelming costs that excessive bank debt can have on the broader economy, some contend that there may be some benefits from debt for a firm’s corporate governance. In particular, some academics have argued that debt is useful because it “disciplines” bank management. The idea suggests that creditors with hard claims against the firm will monitor the firm to prevent bank management from misusing the free cash flows that the banks’ economic activities generate. If these benefits exist and are substantial, we may face a vexing tradeoff: too much debt creates dramatic social costs, moral hazard, and systemic risk, while too little may have negative consequences for firm governance. The challenge is to find a way of optimizing that tradeoff.
This Article engages that challenge, and introduces a new kind of financial institution – called a Liability Holding Company (LHC) – that appropriately balances the social costs of excessive private leverage with the purported benefits for corporate governance that such leverage might create. Our proposal places an increased liability version of the bank’s equity in a conjoined but separately controlled entity, the LHC, that also owns other assets to which the banks’ liabilities have recourse in the event of failure. The equity shares of the LHC—a holding company subject to a unique regulatory regime supervised by the Federal Reserve, similar to Bank Holding Companies or Financial Holding Companies—are then traded in public markets. The LHC thus aims to eliminate or at least greatly reduce the role of the government as the effective guarantor of the systemically important financial institutions (SIFIs), thus reducing the distortions that current implicit governmental guarantees create. It additionally allows banks the benefits of two boards: an advising board, that the bank managers may appoint, and the monitoring board housed at the LHC, appointed by the LHC’s own public shareholders. This dual board structure resolves some important issues raised in the long-standing debate about the role corporate boards should play. We discuss in detail how this proposal would function within the present legal and regulatory environment—particularly within the contexts of bank regulation, corporate governance, and Dodd-Frank—and address counter-arguments and alternative proposals.
Saule Omarova (North Carolina) will serve as discussant for the paper.