IDEAS home Printed from https://ideas.repec.org/p/cbr/cbrwps/wp299.html
   My bibliography  Save this paper

The Proprietary Foundations of Corporate Law

Author

Listed:
  • John Armour
  • Michael J Whincop

Abstract

Recent work in both the theory of the firm and of corporate law has called into question the appropriateness of analysing corporate law as ‘merely’ a set of standard form contracts. This article develops these ideas by focusing on property law’s role in underpinning corporate enterprise. Rights to control assets are a significant mechanism of governance in the firm. Practical circumstances dictate that such rights must be shared. Property law protects the rights of co-owners against each other’s opportunistic attempts to grant entitlements to t hird parties. At the same time, it uses a range of strategies to minimise the costs such protection imposes on third parties. The choice of strategy significantly affects co-owners’ freedom to customise their control-sharing arrangements. This theory is applied to give an account of the ‘proprietary foundations’ of corporate law, which has significant implications for the way in which the subject’s functions are understood and evaluated.

Suggested Citation

  • John Armour & Michael J Whincop, 2005. "The Proprietary Foundations of Corporate Law," Working Papers wp299, Centre for Business Research, University of Cambridge.
    • Handle: RePEc:cbr:cbrwps:wp299
    Note: PRO-2
    as

    Download full text from publisher

    File URL: https://www.jbs.cam.ac.uk/cbrwp299/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-795, December.
    2. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-1158, December.
    3. La Porta, Rafael & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," Journal of Finance, American Finance Association, vol. 52(3), pages 1131-1150, July.
    4. Oliver Hart & John Moore, 1998. "Default and Renegotiation: A Dynamic Model of Debt," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(1), pages 1-41.
    5. Eisenberg, Melvin, 1999. "Corporate Law, Social Norms and Belief Systems," Berkeley Olin Program in Law & Economics, Working Paper Series qt1dh3j8qj, Berkeley Olin Program in Law & Economics.
    6. Henry B. Hansmann & Ugo A. Mattei, 1998. "The Functions Of Trust Law: A Comparative Legal And Economic Analysis," Yale School of Management Working Papers ysm102, Yale School of Management.
    7. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
    8. Schwartz, Alan, 1989. "A Theory of Loan Priorities," The Journal of Legal Studies, University of Chicago Press, vol. 18(2), pages 209-261, June.
    9. Alan Schwartz, 1997. "Priority Contracts and Priority in Bankruptcy," Yale School of Management Working Papers ysm72, Yale School of Management.
    10. Henry Hansmann & Reinier Kraakman, 2000. "The Essential Role of Organizational Law," Yale School of Management Working Papers ysm147, Yale School of Management, revised 01 Nov 2001.
    11. Luigi Zingales, 1997. "Corporate Governance," NBER Working Papers 6309, National Bureau of Economic Research, Inc.
    12. Barak Medina, 2003. "Augmenting the Value of Ownership by Protecting It Only Partially: The "Market-Overt" Rule Revisited," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 19(2), pages 343-372, October.
    13. Schwartz, Alan, 1992. "Relational Contracts in the Courts: An Analysis of Incomplete Agreements and Judicial Strategies," The Journal of Legal Studies, University of Chicago Press, vol. 21(2), pages 271-318, June.
    14. Cheffins, Brian R., 1997. "Company Law: Theory, Structure and Operation," OUP Catalogue, Oxford University Press, number 9780198764694, Decembrie.
    15. Simon Deakin & Alan Hughes, 1999. "Economic Efficiency and the Proceduralisation of Company Law," Working Papers wp133, Centre for Business Research, University of Cambridge.
    16. Barzel,Yoram, 1997. "Economic Analysis of Property Rights," Cambridge Books, Cambridge University Press, number 9780521597135, February.
    17. J.Armour & S.Deakin, 2001. "Insolvency, Employment Protection and Corporate Restructuring: The effects of TUPE," Working Papers wp204, Centre for Business Research, University of Cambridge.
    18. Smith, Clifford W, Jr & Warner, Jerold B, 1979. "Bankruptcy, Secured Debt, and Optimal Capital Structure: Comment," Journal of Finance, American Finance Association, vol. 34(1), pages 247-251, March.
    19. Hansmann, Henry & Kraakman, Reinier, 2002. "Property, Contract, and Verification: The Numerus Clausus Problem and the Divisibility of Rights," The Journal of Legal Studies, University of Chicago Press, vol. 31(2), pages 373-420, June.
    20. Smith, Clifford Jr. & Warner, Jerold B., 1979. "On financial contracting : An analysis of bond covenants," Journal of Financial Economics, Elsevier, vol. 7(2), pages 117-161, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kenneth Ayotte & Patrick Bolton, 2011. "Optimal Property Rights in Financial Contracting," The Review of Financial Studies, Society for Financial Studies, vol. 24(10), pages 3401-3433.
    2. Jason Donaldson & Denis Gromb & Giorgia Piacentino, 2019. "Conflicting Priorities: A Theory of Covenants and Collateral," 2019 Meeting Papers 157, Society for Economic Dynamics.
    3. Luigi Zingales, 2000. "In Search of New Foundations," Journal of Finance, American Finance Association, vol. 55(4), pages 1623-1653, August.
    4. Benito Arruñada, 2010. "Institutional support of the firm: A theory of business registries," Economics Working Papers 1195, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 2010.
    5. Committee, Nobel Prize, 2016. "Oliver Hart and Bengt Holmström: Contract Theory," Nobel Prize in Economics documents 2016-1, Nobel Prize Committee.
    6. Eduard Marinov, 2016. "The 2016 Nobel Prize in Economics," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 6, pages 97-149.
    7. Raghuram G. Rajan & Luigi Zingales, 1998. "The Governance of the New Enterprise," CRSP working papers 487, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    8. Gérard Charreaux, 2002. "Variation sur le thème:"À la recherche de nouvelles fondations pour la finance et la gouvernance d'entreprise"," Revue Finance Contrôle Stratégie, revues.org, vol. 5(3), pages 5-68, September.
    9. Dietrich, Diemo & Jindra, Björn, 2010. "Corporate governance in the multinational enterprise: A financial contracting perspective," International Business Review, Elsevier, vol. 19(5), pages 446-456, October.
    10. Benito Arruñada & Giorgio Zanarone & Nuno Garoupa, 2019. "Property Rights in Sequential Exchange," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 35(1), pages 127-153.
    11. Alexander Brink, 2010. "Enlightened Corporate Governance: Specific Investments by Employees as Legitimation for Residual Claims," Journal of Business Ethics, Springer, vol. 93(4), pages 641-651, June.
    12. Mahoney, Joseph T., 2012. "Towards a Stakeholder Theory of Strategic Management," Working Papers 12-0100, University of Illinois at Urbana-Champaign, College of Business.
    13. Bolton, Patrick & Jeanne, Olivier, 2005. "Structuring and Restructuring Sovereign Debt: The Role of Seniority," CEPR Discussion Papers 4901, C.E.P.R. Discussion Papers.
    14. Curtiss, Jarmila, 2012. "Determinants of Financial Capital Use: Review of theories and implications for rural businesses," Working papers 122846, Factor Markets, Centre for European Policy Studies.
    15. Krishna B. Kumar & Raghuram G. Rajan & Luigi Zingales, "undated". "What Determines Firm Size?," CRSP working papers 496, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    16. Paterson J, 2001. "Corporate Governance, The Limits of Rationality and Proceduralisation," Working Papers wp198, Centre for Business Research, University of Cambridge.
    17. Nicolai J. Foss & Peter G. Klein & Lasse B. Lien & Thomas Zellweger & Todd Zenger, 2021. "Ownership competence," Strategic Management Journal, Wiley Blackwell, vol. 42(2), pages 302-328, February.
    18. Kirsten Foss & Nicolai J. Foss, 1999. "Understanding Ownership Residual Rights of Control and Appropriable Control Rights," DRUID Working Papers 99-4, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
    19. Klein, Peter G. & Mahoney, Joseph T. & McGahan, Anita M. & Pitelis, Christos N., 2012. "Who Is in Charge? A Property Rights Perspective on Stakeholder Governance," Working Papers 12-0102, University of Illinois at Urbana-Champaign, College of Business.
    20. Luigi Zingales, 1997. "Corporate Governance," NBER Working Papers 6309, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    theory of corporate law; shared ownership; property rights;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • K11 - Law and Economics - - Basic Areas of Law - - - Property Law
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cbr:cbrwps:wp299. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ruth Newman (email available below). General contact details of provider: http://www.jbs.cam.ac.uk .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.