IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Legal capital: an outdated concept

  • John Armour
Registered author(s):

    This paper reviews the case for and against mandatory legal capital rules. It is argued that legal capital is no longer an appropriate means of safeguarding creditors' interests. This is most clearly the case as regards mandatory rules. Moreover, it is suggested that even an 'opt in' (or default) legal capital regime is unlikely to be a useful mechanism. However, the advent of regulatory arbitrage in European corporate law will provide a way of gathering information regarding investors' preferences in relation to such rules. Those creditor protection rules that do not further the interests of adjusting creditors will become subject to competitive pressures. Legislatures will be faced with the task of designing mandatory rules to deal with the issues raised by Ônon-adjustingÕ creditors in a proportionate and effective manner, consistent with the Gebhard formula.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.cbr.cam.ac.uk/pdf/WP320.pdf
    Our checks indicate that this address may not be valid because: 404 Not Found. If this is indeed the case, please notify (Howard Cobb)


    Download Restriction: no

    Paper provided by ESRC Centre for Business Research in its series ESRC Centre for Business Research - Working Papers with number wp320.

    as
    in new window

    Length:
    Date of creation: Mar 2006
    Date of revision:
    Handle: RePEc:cbr:cbrwps:wp320
    Note: PRO-2
    Contact details of provider: Web page: http://www.cbr.cam.ac.uk/

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Mariassunta Giannetti & Mike Burkart & Tore Ellingsen, 0. "What You Sell Is What You Lend? Explaining Trade Credit Contracts," Review of Financial Studies, Society for Financial Studies, vol. 24(4), pages 1261-1298.
    2. Christian Leuz, 1998. "The role of accrual accounting in restricting dividends to shareholders," European Accounting Review, Taylor & Francis Journals, vol. 7(4), pages 579-604.
    3. Nash, Robert C. & Netter, Jeffry M. & Poulsen, Annette B., 2003. "Determinants of contractual relations between shareholders and bondholders: investment opportunities and restrictive covenants," Journal of Corporate Finance, Elsevier, vol. 9(2), pages 201-232, March.
    4. Kalay, Avner, 1982. "Stockholder-bondholder conflict and dividend constraints," Journal of Financial Economics, Elsevier, vol. 10(2), pages 211-233, July.
    5. Simeon Djankov & Caralee McLiesh & Andrei Shleifer, 2005. "Private Credit in 129 Countries," NBER Working Papers 11078, National Bureau of Economic Research, Inc.
    6. David Blanchflower & Andrew J. Oswald, 1990. "What Makes an Entrepreneur? Evidence on Inheritance and Capital Constraints," NBER Working Papers 3252, National Bureau of Economic Research, Inc.
    7. John Armour & Douglas Cumming, 2008. "Bankruptcy Law and Entrepreneurship," American Law and Economics Review, Oxford University Press, vol. 10(2), pages 303-350.
    8. Kaplow, Louis & Shavell, Steven, 2002. "Economic analysis of law," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 25, pages 1661-1784 Elsevier.
    9. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    10. Ringleb, Al H & Wiggins, Steven N, 1990. "Liability and Large-Scale, Long-term Hazards," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 574-95, June.
    11. Chee K. Ng & Janet Kiholm Smith & Richard L. Smith, 1999. "Evidence on the Determinants of Credit Terms Used in Interfirm Trade," Journal of Finance, American Finance Association, vol. 54(3), pages 1109-1129, 06.
    12. Gelter, Martin, 2006. "The subordination of shareholder loans in bankruptcy," International Review of Law and Economics, Elsevier, vol. 26(4), pages 478-502, December.
    13. 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.
    14. Petersen, Mitchell A & Rajan, Raghuram G, 1997. "Trade Credit: Theories and Evidence," Review of Financial Studies, Society for Financial Studies, vol. 10(3), pages 661-91.
    15. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    16. Ilia D. Dichev, 2002. "Large-Sample Evidence on the Debt Covenant Hypothesis," Journal of Accounting Research, Wiley Blackwell, vol. 40(4), pages 1091-1123, 09.
    17. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    18. Kanda, Hideki, 1992. "Debtholders and Equityholders," The Journal of Legal Studies, University of Chicago Press, vol. 21(2), pages 431-48, June.
    19. John Armour, 2005. "Who should make corporate law? EC legislation vs regulatory competition," ESRC Centre for Business Research - Working Papers wp307, ESRC Centre for Business Research.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:cbr:cbrwps:wp320. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Howard Cobb)

    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 references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.