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Event Studies and the Law: Part II--Empirical Studies and Corporate Law

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  • Sanjai Bhagat

    (Leeds School of Business)

  • Roberta Romano

    (Yale Law School, Yale International Center for Finance and NBER)

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    Abstract

    This paper is the second part of a review of the event study methodology, which has proved to be one of the most successful uses of econometrics in policy analysis. In this part we focus on the methodology's application to corporate law and corporate governance issues. Event studies have played an important role in the making of corporate law and in corporate law scholarship. The reason for this input is twofold. First, there is a match between the methodology and subject matter: the goal of corporate law is to increase shareholder wealth and event studies provide a metric for measurement of the impact upon stock prices of policy decisions. Second, because the participants in corporate law debates share the objective of corporate law, to adopt policies that enhance shareholder wealth, their disagreements are over the means to achieve that end. Hence, the discourse can be empirically informed. The paper concludes by sketching the methodology's use in evaluating the economic effects of regulation. While event studies' usefulness for policy analysis is by now familiar in the corporate law setting, we hope that our two-part review will suggest appropriate applications to other fields of law.

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    Bibliographic Info

    Paper provided by Yale Law School John M. Olin Center for Studies in Law, Economics, and Public Policy in its series Yale Law School John M. Olin Center for Studies in Law, Economics, and Public Policy Working Paper Series with number yale_lepp-1019.

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    Handle: RePEc:bep:yaloln:yale_lepp-1019

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    Web page: http://www.law.yale.edu/outside/html/home/index.htm

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