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Mark Roe

  • An illustrated battle scene where cursor arrows are being launched

    Faculty Books in Brief: Summer 2022

    July 2, 2022

    From the Hughes Court to stock market short-termism to the U.S.'s "defend forward" cyber strategy

  • Mark Roe and Lucian Bebchuk.

    Articles by Harvard Law faculty and alumni among top ten corporate and securities articles of 2021

    June 22, 2022

    Articles by four Harvard Law faculty were selected in an annual poll of corporate and securities law professors as three of the ten best corporate and securities articles of 2021.

  • Quarterly Capitalism Isn’t Ruining the World

    April 6, 2022

    Stock-market short-termism is that rare enemy that unites left and right, management and employees, and some of the world’s biggest fund managers and consultants. On the left, “quarterly capitalism” is shorthand for venal executives and greedy shareholders abusing workers and the environment in pursuit of unsustainable profits. On the right, critics fear short-term-oriented stockholders pressure management to make dumb decisions, depressing investment and the economy. Neither is correct, as a compelling short book from Harvard Law School Professor Mark Roe shows. And that matters for public policy, lawmakers and the dominant narrative in how America’s corporations are run. There are plenty of problems, but they need different fixes.

  • Does stock market short-termism make capitalism irresponsible?

    February 23, 2022

    An article by Mark Roe: Stock market short-termism is said to drive ESG and CSR shortfalls, worsening environmental quality and global warming in particular, making the corporation less responsible. A stock market of rapid traders is not a stock market, in the conventional view, that can think about sustainability and climate catastrophe. The recent EU initiative on sustainable capitalism (such as via this study)  strongly asserts this proposition, and it is one that is widely believed on both sides of the Atlantic. “The short-term payback periods of financial markets take precedent over the long-term time horizons of ecological and social systems,” says one analysis. “The finance world’s short-termism will destroy our communities, economies and the planet,” the World Economic Forum was told in Davos.

  • Why the bias for debt over equity is hard to dislodge

    January 24, 2022

    The niceties of corporate finance rarely attract the attention of activists. It is rarer still that those at either end of the political spectrum agree on the need for change. When it comes to the tax system’s preferential treatment for debt over equity, however, both the left-wing Tax Justice Network and the fiscally conservative Tax Foundation agree that the “debt bias” needs correcting. But the degree of consensus belies the difficulty of getting it done. ... What would wholesale reform look like? In a paper published in 2017, Mark Roe of Harvard Law School and Michael Tröge of ESCP Business School put forward some ideas. One is to treat debt less preferentially. They imagine a bank with $50bn in gross profits and $40bn in interest payments. With full deduction for interest and a corporate-tax rate of 20%, the bank would pay tax of $2bn, and have an incentive to rack up debt. But if the interest deduction were removed altogether, a tax rate of 20% would wipe out the bank’s entire net profit. One solution would be to withdraw deductibility, but to lower the tax on gross profits. A rate of 7% in that scenario would yield as much to the taxman, and pose the same burden to the bank, as a 35% tax on net profits.

  • Ending Tax Law’s Subsidy for Corporate Debt

    January 5, 2022

    An article by Mark Roe and Michael Troege: Debates on the corporate tax are mostly about “how much"—not about “how.” The debate over recent corporate tax plans is no exception. Congress moves tax rates up or down, but the structural imbalances that have built up in the U.S. tax code because of the “how” are ignored. When Sen. Kyrsten Sinema (D-Ariz.) opposed any rise in the corporate tax rate, talk turned to other tax possibilities. With the budget scoring indicating that better enforcement and auditing will not produce the predicted bonanza, corporate tax reform may well come back into focus.

  • Canada should tax bank debt, instead of bank equity

    September 14, 2021

    An op-ed by Mark Roe and Michael Troege: The Liberal party announced its plan to raise the corporate tax rate on large banks and insurance companies from 15 per cent to 18 per cent. Maybe the banks should pay more taxes; maybe not. But if banks need to be taxed more, this is not the right way to do it. It will incentivize them to take on more debt, creating unnecessary dangers if an economic crisis hits the Canadian banking system.

  • Hiking bank taxes can be done more safely than what’s proposed: Harvard Law professor

    September 1, 2021

    Mark Roe, corporate law professor at Harvard University, joins BNN Bloomberg to discuss the Liberal party’s plans to hike corporate taxes for banks and insurers. He notes that taxing bottom line profits (instead of gross profit before deducting interest on debt) would result in less equity for the Banks should a downturn arise, because debt is tax-favoured. But he notes it’s likely not enough a tax increase for institutions to move money into other parts of the business.

  • Policies to hike bank taxes are pushing in the wrong direction: Harvard Law professor

    August 30, 2021

    Mark Roe, corporate law professor at Harvard University, joins BNN Bloomberg to discuss the Liberal party’s plans to hike corporate taxes for banks and insurers. He notes the move might result in less equity for the Banks should a downturn arise, but notes it’s likely not enough a tax increase for institutions to move money into other parts of the business.

  • Clearinghouses Are Intended to Reduce Risk. They Can Amplify It.

    February 3, 2021

    The Depository Trust + Clearing Corp. is unpopular with the trading bros on r/WallStreetBets for its role in short-circuiting the short squeeze in GameStop Corp. shares. But you don’t have to care about the raucous GameStop gamers and their “diamond hands” to be concerned about the DTCC’s intervention in the episode. Clearinghouses are intermediaries that make sure sellers of securities get paid, and buyers of securities get what they paid for. Here’s the problem in a nutshell, according to several market experts: The DTCC and its three clearing subsidiaries are focused exclusively—and understandably—on protecting the markets they serve. When risk increases, the clearinghouses demand more collateral from their customers as a safety buffer. But that collateral has to come from somewhere. So making the DTCC clearinghouse safer could leave other parts of the financial system with thinner safety buffers...This is not a new concern. In a 2013 article for the California Law Review, Harvard Law School professor Mark Roe wrote that clearinghouses “are efficient financial platforms in ordinary times” but “do little to reduce systemic risk in crisis times.” That’s because, he wrote, “The major reduction in risk among the inside-the-clearinghouse traders is largely achieved by pushing that risk elsewhere, often to a systemically dangerous spot.” The risk, in other words, is like a balloon that expands in one place when squeezed in another.

  • Harvard experts slam EU report on long-term strategic thinking

    October 28, 2020

    Four Harvard professors have criticised a recent European Commission report that proposes reforms to encourage long-term strategic thinking. The commission’s report aims to tackle short-term management of companies and make them more sustainable. The wince-inducing conclusion of four Harvard academics is that the commission report contains “deep flaws”, “mistakenly conflates” key factors, fails to engage with alternative sources of evidence and “touts cures” backed by “little evidentiary support”. Some of the cures proposed by the report, the four argue, could be “counterproductive and costly”. Amounting to a brutal comment on the complexity of sustainability, The European Commission’s Sustainable Corporate Governance Report: A Critique, illustrates the difficulty governments may encounter when attempting to legislate for long-term strategic thinking in large listed companies. The European Commission’s report, written by the business advisory firm EY, concludes that far too many company directors across the EU continue to think short term instead of acting in the long-term interests of their stakeholders. It presents evidence and then sets about detailing the remedies. The Harvard professors—Mark Roe, Holger Spamann and Jesse Fried of Harvard Law School, and Charles Wang of the university’s business school—say it’s mostly wrong. First, the academics argue, the report confuses the definition of the problem. In focusing on the issue of “short-term” business thinking, they say the report “conflates” timeframes with problems stemming from “externalities” and the “distribution” of benefits. That’s three topics probably needing different cures, they say. “For policy analysis, however, the conflation is seriously debilitating. Real world companies will often fall short on all three dimensions, but cures for one may exacerbate another,” they write. Then there is the issue of flawed evidence of short-termism.

  • XFL Creditors Fight The Rock’s Bid, Saying Sale Was Rushed And Incomplete

    August 10, 2020

    In the wake of Vince McMahon’s Alpha Entertainment reaching an agreement to sell the XFL for $15 million, creditors are left wondering if they’ll see any of the money. As first reported by Sportico’s Scott Soshnick, a group that includes former WWE star Dwayne “The Rock’’ Johnson and RedBird Capital CEO Gerry Cardinale will buy the team, pending approval by U.S. Bankruptcy Judge Laurie Selber Silverstein. “I’ll be lucky to get pennies on the dollar,” a sports business professional who operates a small company tells Sportico...As an unsecured creditor in Alpha’s chapter 11 bankruptcy, the source lacks any collateral in Alpha’s properties or assets. It also means they’ll be among the last in line to collect any proceeds from the sale. The XFL, the professional maintains, owes them tens of thousands of dollars for services already rendered...One factor advantaging Alpha—and as acknowledged by creditors in their objection—is that, as the debtor, Alpha is entitled to deference in seeking approval of the proposed sale. A related factor is that the relevant legal standard for review is not especially difficult to meet. That standard is the business purpose test, which requires there be a sensible reason for the sale and a fair price for it. Harvard Law School Professor Mark Roe, an expert in bankruptcy law, highlighted these factors in an interview. The business purpose test, Roe said, is “usually an easy standard to satisfy as the sales’ proponents just have to give a plausible justification.” He surmises that for this sale, “it could have been XFL has been languishing and a new owner like Dwayne Johnson can give it a boost of publicity.” Where Roe sees Alpha potentially running into more trouble is “the structure of the auction and the relationships.” “Even if there’s a business purpose,” Roe notes, “the court should be structuring an auction that’s fair and likely to bring forward the best price.” Roe believes the court will attempt to determine if insiders downplayed asset value. In that instance, “the bidding documents would be defective.” Roe also draws attention to the creditors’ concern about the sale potentially releasing the insiders of causes of action—“that,” Roe said, “would be another issue separate from whether there was a sound business purpose.”

  • As retailers including J. Crew and Neiman Marcus file for bankruptcy, experts worry about skittish creditors and an overloaded bankruptcy court system

    May 18, 2020

    J. Crew and Neiman Marcus are among the first major retailers to file for bankruptcy as the coronavirus pandemic further disrupts an industry that was already having its fair share of struggles. Others are expected to follow suit, with JCPenney seeming a likely candidate as it reportedly postpones a major debt payment. Filing for Chapter 11 bankruptcy protection gives distressed companies a chance to reorganize and get a fresh start. But retail companies going through bankruptcy proceedings right now are facing a set of difficulties that wouldn’t be happening if not for the pandemic. Being unable to predict stores’ future sales is a major challenge, as is not having a way to hold going-out-of-business sales while locations remain closed in certain states. Some experts are also starting to worry about what could happen if too many companies end up filing for bankruptcy protection at once...Ben Iverson, a professor at Brigham Young University, and Mark Roe, a professor at Harvard Law School, argued in an op-ed on Project Syndicate that the bankruptcy court system should immediately work to expand its capacity to hear cases in order to avoid these issues. “For starters, special procedures are needed for bankrupts to pay critical suppliers and sometimes employees. If courts are backed up, these payments will be delayed, causing disruptions to ripple throughout supply chains,” they wrote. They continued: “Furthermore, some bankruptcy decisions must be made almost immediately so that businesses can get and keep enough cash to stay alive through their next payroll.” The authors pointed out that bankruptcy filings typically surge several months after unemployment filings start to grow at an exponential rate.

  • Swamped bankruptcy courts threaten US recovery

    May 15, 2020

    In early March, just as Covid-19 was spreading alarm in the west, the US sporting goods retailer Modell’s filed for bankruptcy. The company has long been blighted with excess debt and poor sales, and was overdue for a shakeout. What happened next was odd — and symbolic. In the last two months, courts have repeatedly frozen Modell’s bankruptcy process, citing the pandemic. The company is now a zombie, neither dead nor alive. Its status could soon proliferate across corporate America, further confusing the economic outlook...Rating agencies project that default rates among companies whose debt they consider risky will hit or exceed the 15 per cent level seen after the 2008 crisis. Law professors Benjamin Iverson and Mark Roe predict “the biggest surge in bankruptcies” that the US court system has ever seen...The fifth — and biggest — problem is a shortage of judges. Profs Iverson and Roe calculate that if bankruptcies surge to 2008 levels, “a US bankruptcy judge would have to work close to 50 hours per week to keep up with the increased caseload”. However they fear that bankruptcy rates could actually be double the 2008 level. “No one can expect bankruptcy judges to work 100 hours per week,” they lament. Not even, presumably, with Zoom.

  • Planning for an American Bankruptcy Epidemic

    May 6, 2020

    An article by Ben Iverson and Mark RoeNeiman Marcus and J.C. Penney, two of America’s retailing giants, recently failed to pay interest on their debt. We should expect one or both firms to file for bankruptcy soon, heralding a surge of US business failures caused by the COVID-19 pandemic. And with most American households currently lacking the cash to pay expenses for three months, many families and individuals will declare bankruptcy, too. Before long, the United States could face a trifecta of millions of insolvent consumers, thousands of small-business failures, and many bankruptcies of large public firms, with whole industries going broke at the same time. Bankruptcy filings in the US have historically peaked several months after a surge in unemployment. And US unemployment is now rising at an unprecedented rate, with more than 30 million claims filed in the last six weeks. If historical patterns hold in the coming months, the bankruptcy surge could be the biggest that the US court system has ever experienced. Bankruptcy works well enough and quickly enough in normal times, particularly for restructuring large public firms. But it cannot work well, and the economy will suffer, if the system is overloaded and businesses become stuck in legal proceedings.

  • Cafe chain Cosi sues SBA for excluding bankrupt companies from emergency loans

    April 29, 2020

    Fast casual restaurant Cosi sued the Small Business Administration on Tuesday, alleging it illegally denied its $3.7 million emergency loan request on grounds that the company is currently undergoing bankruptcy proceedings. The Charlestown, Massachusetts-based flatbread chain filed a lawsuit on Tuesday in the U.S. bankruptcy court for the District of Delaware, arguing that the company should be eligible, under the CARES Act, to apply for Paycheck Protection Program loans designed to help small businesses keep employees on payroll amid the novel coronavirus. In a five-count complaint, requesting that the court enjoin the SBA from excluding Cosi and other bankruptcy debtors from access to PPP funds, the food chain alleges that the exclusion is discriminatory, exceeds authority under the CARES Act, and is arbitrary and capricious...Harvard Law professor Mark Roe told Yahoo Finance that bankruptcy could “cut a couple of different ways” under the SBA’s language. “One, is companies that might be able to get out of bankruptcy with the PPP money can’t get it,” he said. “It also gives companies an incentive to not file, or at least not file right away, so that they can get the PPP money and hope that staves off of bankruptcy.” Cosi argues Roe’s first point: That the CARES Act exclusion compromises the company’s chances for emerging from Chapter 11 reorganization. But the main challenge for the SBA is parsing businesses struggling as a result of COVID-19 from businesses that happen to be struggling during COVID-19.

  • Cartoon of a hand holding up a white flag

    Easing the economic aftermath of a global pandemic

    April 28, 2020

    Mark Roe and John Coates recently spoke with Harvard Law Today about what could be done to lower the chances of a U.S. bankruptcy backlog and how other corporate governance challenges posed by the pandemic should be handled.

  • ‘The flood is coming’: Coronavirus could spur unprecedented wave of business bankruptcies

    April 24, 2020

    Business bankruptcy filings year-to-date are trending slightly higher compared with the same period last year, but industry experts warn the seemingly moderate escalation obscures the reality of a spike in fillings to come in the wake of the novel coronavirus pandemic...While the current filing numbers look benign on their face, there are several reasons filings have not already skyrocketed despite COVID-19’s shutdown of the U.S. economy since March. Harvard Law professor, Mark Roe, told Yahoo Finance that part of the delay is due to the fact that most companies, when hit with a shock, will exhaust cash sources first, and file for bankruptcy only when they have no other choice. Cash resources contributing to a delay could include the grants and loans made available to small and large businesses through the CARES Act, the $2.2 trillion coronavirus stimulus bill passed by Congress last month. “Even if a company isn't selling anything now, if it has some cash in the bank, or can draw on a bank line, or can somehow just push things along to kick the can down the road most companies will try to do that,” he said, adding that small businesses that have already entered bankruptcy are not eligible for the Act’s Payroll Protection Program. Roe estimated that if the economy continues on its current trend, a surge in bankruptcies should be expected around September or October. In addition, he said, historical correlations exist between increased claims for unemployment and business bankruptcy filings.

  • Detail of Austin Hall

    Harvard Law excels in SSRN citation rankings

    April 6, 2020

    Statistics released by the Social Science Research Network (SSRN) indicate that, as of the beginning of 2020, Harvard Law School faculty members featured prominently on SSRN’s list of the most-cited law professors.

  • A Way to Help Keep the COVID-19 Economy Working

    March 24, 2020

    An article by Mark Roe: As the coronavirus pandemic shuts down the world’s economies, stock markets plummet, and unemployment rises, policymakers will be forced to figure out how to contain the outbreak while preventing financial and economic collapse. Most economic proposals in developed countries focus on cash payments to people, deferred tax payments, and business bailouts. But biomedicine is critical to saving the economy, and of the three major biomedical channels now in play, the least important medically is the one that could impede an economic Armageddon. It’s a test to check whether a person has had, recovered from, and thus become immune to COVID-19. Scientists say that low-symptom and symptomless cases exceed the symptomatic. When these asymptomatic people are over the infection, they could go to work – they will not infect those with whom they come into contact. But we need to know who they are.

  • Short-Termism Isn’t the Boogeyman You Think It Is

    November 18, 2019

    Since the financial crisis, political figures, academics and financial industry participants increasingly decry the rise of “short-termism” in U.S. stock markets. Short-termism, as usually defined by its proponents, is an ongoing trend of corporate myopia. In which corporate managers, driven by investor demands, focus on near-term earnings and stock price maximization at the expense of long-term value creation. ... The case for short-termism, on its face, seems logical, if not compelling. But Mark J. Roe, the David Berg Professor of Law at Harvard University, is among many academic skeptics of the theory. In a 2018 paper, “Stock Market Short-Termism’s Impact,” Roe highlighted the five most valuable companies as of Sept. 19, 2018. ... And as the op-ed from Buffett and Dimon shows, corporate executives do believe that short-term pressures exist. Even Roe admitted in the interview that the aforementioned study of CFOs who focus on quarterly earnings was the “most convincing” data point in favor of the theory. “If CFOs are saying that they are focused on the short term, who are we to second-guess them?” he asked rhetorically.

  • Why America’s CEOs Are Talking About Stakeholder Capitalism

    November 7, 2019

    An op-ed by Mark Roe: Back in August, the Business Roundtable, which comprises the chief executive officers of America’s largest companies – with combined annual revenues of more than $7 trillion – updated its long-standing statement regarding corporate purpose. It’s not just about shareholders, the CEOs say; their firms must be committed to all stakeholders, including customers, employees, suppliers, communities, and the environment. In fact, shareholders came in last on the CEOs’ new list. And the statement’s principal author, in his apparent exhilaration, is reported to have said that he felt like Thomas Jefferson drafting the Declaration of Independence. The August announcement generated three main strands of reaction. First, some liberal commentators applauded US business leaders for finally getting the message. They criticized not the goals, but the lack of a proposal for how stakeholders can hold CEOs directly accountable. More skeptical observers said that the statement differed little from previous Business Roundtable pronouncements on corporate purpose: boards and executives need, or at least want, discretion to balance the interests of various stakeholders other than the company’s owners. For these critics, this latest declaration offered nothing new, but was a restated manifesto of CEO and board discretion and power to run their companies as they see fit.

  • Purdue Pharma, maker of painkiller OxyContin, files for bankruptcy as part of settlement

    September 17, 2019

    Purdue Pharma, the company that made billions selling the prescription painkiller OxyContin, filed for bankruptcy days after reaching a tentative settlement with many of the state and local governments suing it over the toll of opioids. The filing late Sunday night in White Plains, New York, was anticipated before and after the tentative deal, which could be worth up to $12 billion over time, was announced last week. ... The bankruptcy means Purdue will likely be removed from the first federal opioid trial, scheduled to start in Cleveland on Oct. 21. According to Harvard Law Professor Mark Roe, an expert on corporate bankruptcy, anyone who wants money from Purdue will now have to go through the bankruptcy court.

  • Harvard’s Roe Disputes Perceptions Around Short-termism and Activists

    August 13, 2019

    Activist funds face an uphill effort getting the votes they need to effectuate change. That’s the view of Mark Roe, professor of Law at Harvard Law School. Roe spoke with The Deal for its Activist Investing Today podcast about why he thinks that observers should be wary about blaming activist hedge funds for perceived short-termism in the markets. “They [activists] have to have a really persuasive explanation for why something should change in their target company, enough so that index funds, pension funds and others, who initially are inclined to favor management, back their efforts,’ Roe said. In a wide-ranging conversation, Roe suggested that there is a widespread, possible misperception that the public stock markets are particularly short term, with hikes in buybacks and cuts in research creating problems in corporate America. However, Roe argues there is mixed data on the subject. He points out that capital expenditures are down everywhere in the developed world, but less so in the U.S. “There is something else going on,” he said. “Activist engagements are up over the past 10- or 15 years. R&D is up significantly over the past 10 or 15 years.”

  • HLS faculty maintain top position in SSRN citation rankings 2

    HLS faculty maintain top position in SSRN citation rankings

    January 18, 2019

    Statistics released by the Social Science Research Network (SSRN) indicate that, as of the end of 2018, Harvard Law School faculty members have continued to feature prominently on SSRN’s list of the 100 most-cited law professors.

  • Keep Quarterly Reporting

    August 30, 2018

    An op-ed by Robert C. Pozen and Mark Roe. On August 17, President Trump waded into another complex area by a short tweet. He had apparently asked several top business leaders how to “make business (jobs) even better in the United States.” He then directed the Securities and Exchange Commission to study one business leader’s reply: “Stop quarterly reporting and go to a six-month system.” Trump’s tweet reflects the belief of many corporate executives and commentators that quarterly reporting pushes public companies away from attractive long-term investments. However, the long-term benefits of semi-annual reporting are doubtful, while its costs are significant.

  • Six Months Isn’t ‘Long Term’

    August 21, 2018

    An op-ed by Robert C. Pozen and Mark J. Roe. President Trump tweeted on Friday that he had directed the Securities and Exchange Commission to study a suggestion from a business leader, later revealed as outgoing Pepsi CEO Indra Nooyi : “Stop quarterly reporting & go to a six month system.” The popular theory is that quarterly reporting discourages firms from making long-term investments. But switching to semiannual reporting wouldn’t help. Find us CEOs with stockpiles of good, long-term projects that they are not pursuing—but that they would, if only they had three extra months to report earnings. Reporting every six months is nobody’s definition of “long term.” Besides, investors have waited patiently as Amazon, Netflix and many biotech firms have followed long-term strategies.

  • The End of Quarterly Reporting? Not Much to Cheer About

    August 21, 2018

    President Trump proposed Friday that public companies should report their financial results only twice a year instead of quarterly...“If companies report only every six months, then there could be more damage, not less,” says Mark Roe, a professor of corporate and business law at Harvard Law School. Without quarterly updates, “the stock price could drift even farther out of whack from fundamentals, and then the temptation for management to distort earnings could potentially be even greater.”

  • Trump Asks SEC To Study How Often Corporations Are Required To Report Earnings

    August 21, 2018

    Trump says he wants to consider requiring companies to report their earnings every six months instead of every three. It would ultimately cut back on the amount of paperwork companies have to contend with, but it would also mean investors would get updated less often about how a company is doing. [Mark Roe] is a professor at Harvard Law School..."The problem is if the firm has gone dark for six months instead of three months, the chances of the stock market's expectations being out of line with what really happens increases."

  • Are Buffett and Dimon right about stock market short-termism?

    July 30, 2018

    ...Indeed, markets often substantially overvalue the long term, argues Harvard law professor Mark Roe, as evidenced by the intermittent bubbles in technology and other industries...Roe argues the “doomsday version of the stock-market-driven short-termism argument” – firms forgoing the research and development they need and cutting back on capital expenditures so that they can instead support their stock price via expensive share buybacks – is not supported by evidence. Yes, buybacks have risen over the last decade, but companies did not do so by draining their cash reserves: they took advantage of historically low interest rates that allowed them to borrow [and buy back] nearly for free.

  • The Weak Case Against Stock-Market Short-Termism

    July 23, 2018

    An op-ed by Mark Roe. Translated from the French: It’s commonly thought that the stock market forces firms toward excessively short-term strategies. This expected short-termism is often thought to be a source of a good part of our current economic problems, leading policymakers to consider laws . . . to reduce stockholders’ influence...Although some local observations that are consistent, the evidence of an economy-wide impact is thin . . . .R&D expenses [thought to be a victim of stock-markets] have been rising, not falling, even while stockholder influence is thought to be rising. And, contrary to the idea that short-termism is draining cash [for investment] from large American enterprises, corporate treasuries are more flush with cash than ever. Why the gap between received wisdom and the weak supporting evidence?

  • Don’t blame stock markets for peril of short-termism

    June 19, 2018

    An op-ed by Mark Roe. The Business Roundtable, a prestigious organisation of the CEOs of the largest American companies, last week urged large public companies to stop telling investors what senior executives expect quarterly earnings will be. Their effort arises from the widespread belief that the scourge of market-driven short-termism is seriously damaging the American economy. Ending this quarterly earnings advice would help. Respected business leaders like Jamie Dimon and Warren Buffett have promoted the idea under the headline that “Short-Termism is Harming the Economy”.

  • In the Long Run, Fear of Short-Termism Is Mostly Bunk

    May 16, 2018

    The critics of short-termism have it wrong. The evidence doesn’t support the idea that the economy is suffering because shareholders focused on quarterly reports leads to myopic management...We can go beyond anecdotes. Harvard Law School professor Mark Roe points out in a forthcoming paper that there should be three effects, if short-termism really has spread from Wall Street to management. R&D should be lower, since it has costs today for uncertain benefits in the future; business investment should fall faster in the U.S. than countries less reliant on stock exchanges; and corporate cash should be lower as shareholders demand it back via buybacks and dividends.

  • Are the world’s mega-banks strong enough to withstand another crisis?

    April 17, 2018

    An op-ed by Mark Roe. A decade after the global financial crisis, policymakers worldwide are still assessing how best to prevent bank failures from tanking the economy again. Two recent publications – one from the US Department of the Treasury, and another by Federal Reserve economists – provide an indication of where we are. The US Treasury report examined whether to replace the 2010 Dodd-Frank Act’s regulator-led process for resolving failed mega-banks – the Orderly Liquidation Authority (OLA) – with a solely court-based mechanism. The Treasury’s study was undertaken under instructions from President Donald Trump, who was responding to pressure from several Republican congressional leaders – such as Representative Jeb Hensarling of Texas, the chair of the House Financial Services Committee – who advocate replacing regulators with courts.

  • Harvard Law Professors Top Citation Rankings

    January 31, 2018

    Twelve of the top 100 most-cited law professors of all time teach at Harvard Law School, according to the Social Science Research Network—and professors Lucian A. Bebchuk and Steven Shavell took the first two spots. An electronic service that aims to make research papers and scholarly articles easily accessible, the SSRN contains over 650,000 documents by more than 360,000 authors...“The rankings reflect the significant impact that the Harvard Law School faculty has on policy research and the legal academy,” Bebchuk wrote in an email. Law Professor Cass R. Sunstein ’75, who ranks in fourth place with 1,484 citations, said he thinks there is a significant benefit to publishing work on SSRN. “I think it’s a good thing if you have a paper that’s published and that could benefit from the comments and criticisms of others,” Sunstein said...The list also includes Law professors Louis Kaplow, Reinier H. Kraakman ’71, Mark J. Roe, Jesse M. Fried ’86, Alma Cohen, Allen Ferrell, John Coates IV, Oren Bar-Gill, and J. Mark Ramseyer.

  • HLS faculty maintain top position in SSRN citation rankings

    HLS faculty maintain top position in SSRN citation rankings

    January 24, 2018

    Statistics released by the Social Science Research Network (SSRN) indicate that, as of the end of 2017, Harvard Law School faculty members have continued to feature prominently on SSRN’s list of the 100 most-cited law professors.

  • Coates named fellow in European Corporate Governance Institute

    Coates named fellow of European Corporate Governance Institute

    November 14, 2017

    Harvard Law Professor John F. Coates has been named a fellow of the European Corporate Governance Institute (ECGI).

  • Banks Sidestep a Big Tax-Plan Pitfall

    November 3, 2017

    Banks do pretty well under the tax bill unveiled Thursday: it puts them on track for big tax cuts yet lets the firms avoid some of the biggest potential downsides of the overhaul. At a 20% corporate tax rate, banks stand to be the among the biggest winners from tax reform, according to S&P Global Market Intelligence...The legislation proposed by the House Ways and Means Committee appears to let banks sidestep that issue, though. It does so by limiting the deductibility for companies that spend more money on interest than they take in, said Mark Roe, a professor at Harvard Law School. Banks by and large bring in far more in interest than they pay out.

  • Don’t bank on bankruptcy for banks

    October 19, 2017

    An op-ed by Mark Roe. It is considering replacing it with a solely court-based mechanism, which would be a mistake of potentially crisis-size proportions. Yes, creating a more streamlined bankruptcy process can reduce the decibel level of a bank’s failure and bankruptcy judges are experts at important restructuring tasks, but there are critical factors that cannot be ignored. Restructuring a mega-bank requires pre-planning, familiarity with its strengths and weaknesses, knowledge of how to time the bankruptcy properly in a volatile economy and the capacity to coordinate with foreign regulators.

  • Big Bank Bankruptcy Bill Back on Table; Will It Prevent Meltdown?

    July 25, 2017

    Bankruptcy protections tailored to large financial institutions in crisis are back on the agenda in Congress, but using Chapter 11 in these situations has its drawbacks, some scholars and practitioners say. Bipartisan legislation passed by the House and now wrapped into a larger appropriations measure may improve its chances in the Senate if it should get there...Mark J. Roe, a professor at Harvard Law School, believes so strongly that bankruptcy alone can’t handle a financial crisis from collapsed banks that he and co-author Jeffrey Gordon of Columbia Law School wrote congressional leaders. Their May 23 letter was endorsed by 120 financial market and bankruptcy academics...“To repeal OLA and its supporting provisions would be a dangerous error,” Roe and Gordon state in the letter. FIBA in its current state, however, doesn’t repeal OLA. One of the main problems with FIBA is that it “doesn’t allow the regulators to start the bankruptcy,” Roe told Bloomberg BNA July 14.

  • Why Regulators Are Needed to Handle Failed Banks

    June 6, 2017

    An op-ed by Mark Roe. One of the major reforms to avoid the recurrence of the severity of the financial crisis was a set of mechanisms by which the regulators could wind down failed banks or restructure them if they were still viable. The House of Representatives is set to vote to repeal this measure and replace it with a bankruptcy that only the bankers themselves could decide to enter. These are dangerous actions that can risk turning a tumultuous bank failure into a deep and full financial crisis, like that of the 2008-9 financial panic. Bankruptcy alone cannot handle a financial crisis emanating from collapsed banks. Adding a robust bankruptcy channel makes much sense. But repealing the regulatory-led system and replacing it with bankruptcy is unwise. Replacing it with the narrow, limited bankruptcy structure moving forward in the House is exceedingly unwise.

  • How are we preparing for the next financial panic?

    June 6, 2017

    When the next financial crisis hits — an event that may be years or decades away — we will learn whether this Congress and the president drew the right lessons from the 2008-09 financial crisis. Congress is arguing over whether government can avoid “bailouts” of large financial institutions and still prevent a full-blown crisis. With all of President Trump’s trials and tribulations, hardly anyone is paying attention... A letter from 122 law professors and economists, led by Jeffrey N. Gordon of Columbia Law School and Mark J. Roe of Harvard Law School, argued that the House proposal is unworkable and could trigger the panic that the legislation aimed to avoid.

  • Bankruptcy Scholars Urge Congress Against ‘Grave Mistake’ (subscription)

    May 26, 2017

    More than 100 bankruptcy scholars, including Nobel prize winners and former Federal Reserve governors, are urging Congress not to undo the orderly liquidation authority, the provision of the Dodd-Frank financial reform bill meant to protect the U.S. economy from a bank collapse as bad as Lehman Brothers', or worse. The group is calling the proposed action currently before the U.S. House of Representatives "a grave mistake." The letter was written by Jeffrey Gordon of Colombia Law School and Mark Roe of Harvard Law School and signed by Nobel prize winners Oliver Hart and Peter Diamond, former Federal Reserve governors and the so-called father of modern banking theory, Douglas Diamond.

  • Has France Really Rejected Populism?

    April 28, 2017

    An op-ed by Mark Roe. The liberal West heaved a collective sigh of relief when the results of the first round of the French presidential election came in. After leading in the polls for weeks, Marine Le Pen of the far-right National Front ended up in second place, while Emmanuel Macron, a centrist political independent, finished first. Macron, the fresh face of Europe’s democratic center at just 39 years old, is expected to prevail handily in the second-round runoff on May 7. With Macron’s victory in France following Dutch voters’ rejection of the right-wing populist Geert Wilders earlier this year, most observers are treating the result as another rebuke to the populist revolt that fueled the United Kingdom’s Brexit referendum and US President Donald Trump’s election in 2016. Many seem convinced that the populist tide has crested.

  • Housing Bubble Déjà Vu

    March 10, 2017

    An op-ed by Mark Roe. The 2008-2009 financial crisis exposed a serious weakness in the global financial system’s architecture: an overnight market for mortgage-backed securities that could not handle the implosion of a housing bubble. Some nine years later, that weakness has not been addressed adequately. When the crisis erupted, companies and investors in the United States were lending their extra cash overnight to banks and other financial firms, which then had to repay the loans, plus interest, the following morning. Because bank deposit insurance covered only up to $100,000, those with millions to store often preferred the overnight market, using ultra-safe long-term US Treasury obligations as collateral.

  • Trump’s proposed tax cuts could help six U.S. banks benefit by combined $12 billion a year

    February 16, 2017

    The six largest U.S. banks could see annual profit jump by an average of 14 percent if President Donald Trump delivers on his promise to cut corporate taxes. The lenders, which stand to benefit more than other industries because they typically have fewer deductions, could save a combined $12 billion a year, according to data compiled by Bloomberg. Trump has called for cutting the corporate tax rate to 15 percent from 35 percent...While the cost of borrowing has been low since 2008, interest expenses can be much higher. Banks incorporate net-interest income -- interest earned on assets less interest paid on deposits and other debt -- in their revenue calculations. Revenue would balloon if interest expenses were excluded from this calculation. "Without the interest-expense deduction, many mainstream banks would go out of business," said Mark Roe, a professor at Harvard Law School. "They'd be paying tax on gross revenue, not profits."

  • Surviving The Next Housing-Market Hurricane

    February 2, 2017

    An op-ed by Mark Roe...Since the financial crisis, regulators in the United States and elsewhere have been preparing banks to weather a banking crisis like that of 2008 and 2009. They are now justifiably more confident that a troubled bank can be restructured effectively, and that depositors and other short-term creditors would not trigger a collapse by hastily withdrawing their money. Long-term creditors, they are confident, would take the hit. But disturbing evidence has emerged suggesting that, overall, the global financial system is no safer today than it was in 2007. When the 2008 global financial crisis erupted, America’s red-hot housing market had been operating as a money market for years. Companies’ chief financial officers (and others with excess, temporary cash) were using their cash to purchase securities backed by pools of mortgages, which they would sell back to the bank the following day, reaping attractive interest gains. This overnight market was – and remains – huge, rivaling the size of the entire deposit-based banking system.