Randall Thomas - Academia.edu (original) (raw)
Papers by Randall Thomas
SSRN Electronic Journal, 2000
ABSTRACT When do American CEOs have covenants not to compete (CNCs) in their employment contracts... more ABSTRACT When do American CEOs have covenants not to compete (CNCs) in their employment contracts? To answer this question, we collected a random sample of nearly 1000 CEO employment contracts for 500 companies randomly selected from the S&P 1500 for the time period 1996 to 2010. Our main findings are very revealing. First, our analysis shows that CEO’s are less likely to have CNCs in their employment contracts if the contracts are being enforced in jurisdictions that do not permit strong CNC clauses. Thus, contracts that are likely to be enforced in California are much less likely to include non-compete clauses as its state courts will not enforce those provisions. Second, there is a significant trend toward greater usage of CNC clauses in CEO employment contracts over time. This suggests that employers are more aware than ever of the importance of using CNC clauses and confirms other scholars’ assumptions that, at least in one context, these clauses are used increasingly by employers. Third, there is strong path dependence in the use of CNC clauses: if a company used one in a prior CEO employment contract, then it is much more likely to insist on one in a later contract. Next, longer term contracts are more likely to have CNC clauses than short term contracts. This is likely because the firm has more firm specific investment in CEOs that stay for longer periods. Finally, we find that more profitable firms are more likely to use noncompete provisions in their CEO’s employment contract suggesting that for these firms the risk of harm from a departing CEO may simply be more acute than with other firms.
To conduct a cost-benefit analysis for social policies related to physically or psychologically a... more To conduct a cost-benefit analysis for social policies related to physically or psychologically addictive goods such as tobacco or gambling, the authors propose an adjustment to consumer surplus, the difference between the maximum consumers will pay for a good and what they actually pay.
Journal of official statistics
Surveys have often employed two different self-report formats when gathering information on a ser... more Surveys have often employed two different self-report formats when gathering information on a series of behaviors or events: 1) a yes–no grid format (answer “yes” or “no” if the behavior or event has occurred) or 2) a multiple response list format (“select all that apply”). In a series of five web-based experiments, these two behavioral self-report formats were compared. We found consistent and significant differences – using yes–no grids yielded higher endorsement rates than obtained using multiple response list formats. These differences were obtained regardless of topic or language and country of residence of respondents.
Underage Drinking Underage drinking is a widespread offense that can have serious physical, neuro... more Underage Drinking Underage drinking is a widespread offense that can have serious physical, neurological, and legal consequences. Problematically, it has become quite commonplace. The Office of Juvenile Justice and Delinquency Prevention (OJJDP) works to eliminate underage consumption of alcohol and provide guidance for communities developing prevention and treatment programs. OJJDP created the underage drinking bulletin series to educate practitioners and policymakers about the problems youth face when they abuse alcohol and to provide evidence-based guidelines. The series presents findings from a study on preventing underage drinking in the Air Force and a literature review of the effects and consequences of underage drinking, best practices for community supervision of underage drinkers, legal issues surrounding underage drinking, and practice guidelines for working with underage drinkers. The series highlights the dangers of un-derage drinking. Hopefully, the informa-tion it pro...
Derivative suits, long the principal vehicle for discussions about representative litigation in c... more Derivative suits, long the principal vehicle for discussions about representative litigation in corporate and securities law, now share the stage with younger cousins - securities fraud class actions and state law fiduciary duty class actions. At the same time alternative governance vehicles - independent directors, auditors and other reforms that have followed in the wake of Enron - potentially diminish the relative place of litigation such as derivative suits. This article presents data from all derivative suits filed in Delaware over a two-year period. We find a relatively small number, certainly as compared to fiduciary class action and securities fraud class actions. Unlike these other representative suits, derivative suits are used for both public and close corporations. They arise usually in a duty of loyalty context. Contrary to earlier studies, we do not find evidence that these cases are strike suits yielding little benefit. Instead, roughly 30% of the derivative suits pro...
The PSLRA's lead plaintiff provision was adopted in order to encourage large shareholders wit... more The PSLRA's lead plaintiff provision was adopted in order to encourage large shareholders with claims in a securities fraud class action to step forward to become the class' representative. Congress' expectation was that these investors would actively monitor the conduct of a securities fraud class action so as to reduce the litigation agency costs that may arise when class counsel's interests diverge from those of the shareholder class. Proponents of the provision claimed that there would be substantial benefits from having institutional investors serve as lead plaintiffs. Now, ten years later, the claim that the lead plaintiff is a more effective monitor of class counsel in securities fraud class actions continues to be intuitively appealing, but remains unproven. In this paper, we inquire empirically whether the lead plaintiff provision has performed as projected. We break the lead plaintiffs into five categories: public pension funds; other institutional investor...
We propose that plaintiffs in securities fraud actions should use state inspections statutes to o... more We propose that plaintiffs in securities fraud actions should use state inspections statutes to obtain discovery about potential securities fraud cases. First, we argue that the Private Securities Law Reform Act has substantially increased shareholders' difficulty in uncovering securities fraud. Next, we show that shareholders have an alternative method of investigating fraud: state inspections statutes. We then analyze cases filed under the Delaware inspection statute to examine the costs to plaintiffs of pursuing claims under this statute. We find that the statutory inspection process is a largely successful, although expensive and time-consuming, process. Nevertheless, potential plaintiffs could realize substantial benefits from utilizing inspection statutes in this manner, particularly if Delaware streamlined its inspection process to make it faster and less costly for shareholders seeking information.
In this paper, we examine whether labor groups should be allowed to use Rule 14a-8 as a mechanism... more In this paper, we examine whether labor groups should be allowed to use Rule 14a-8 as a mechanism for pursuing their interests as shareholders. We focus on the questions raised by corporate management about labor's potential conflicting roles as shareholders and workers. Using data from the 1994 proxy season, we conduct an empirical examination of the differences between shareholder resolutions proposed by labor groups and those sponsored by other investors. Our analysis focuses on shareholders' perceptions of these proposals and in particular the proposals' success in the ballot box. Our data set contains 192 shareholder proposals submitted by labor groups, public institutions, private institutions, and individuals. We include proposals covering internal and external corporate governance, compensation-related, and miscellaneous issues. We estimate regressions for the fraction of votes cast for a shareholder-sponsored corporate governance proposal including independent v...
Journal of Empirical Legal Studies
We compile the most extensive hand collected data set on all forms of M&A litigation in the U.S. ... more We compile the most extensive hand collected data set on all forms of M&A litigation in the U.S. to study the effects of lawsuit jurisdictions during a sample period (1999 and 2000) of the Fifth Merger Wave, a period characterized by an abundance of friendly one-bidder deals and the near demise of the hostile offer. We find that only about 12% of all M&A offers are challenged in the courts during this period. Almost half of the suits are filed in Delaware, while federal suits account for less than 9% of the suits in our sample. We find a very small incidence of multi-jurisdictional litigation (about 3% of all suits), unlike the recent sharp increase in such cases in the post-2008 global financial crisis period. We find that litigation filed in Delaware is less of a barrier to deal completion than cases brought in federal court. Litigation filed in federal court is associated with a significantly higher takeover premium in all offers and in completed deals, suggesting that state cour...
SSRN Electronic Journal
This study compares CEO employment contracts across two common law countries: the United States a... more This study compares CEO employment contracts across two common law countries: the United States and Australia. Although the regulatory regimes of these jurisdictions enjoy many comparable features, there are also some important institutional differences in terms of capital market, tax, and regulatory structures, which are discussed here. Debate has raged in the United States on the issue of whether executive compensation is efficient and determined at arm's length, or skewed due to a power imbalance between managers and shareholders. A comparative analysis of the kind undertaken in our study provides an additional perspective on the optimal contracting and managerial power models of executive pay in U.S. academic literature. Even if one model has greater explanatory power in the U.S. context, this will not necessarily be the case in other jurisdictions, such as Australia. In order to do our comparison, we create pairs of U.S. and Australian firms that are matched on a number of ...
University of Pennsylvania Law Review
The ongoing Great Recession has triggered numerous proposals to improve the regulation of financi... more The ongoing Great Recession has triggered numerous proposals to improve the regulation of financial markets and, most importantly, the regulation of organizations such as credit rating agencies, underwriters, hedge funds, and banks, whose behavior is believed to have caused the credit crisis that spawned the economic collapse. Not surprisingly, some of the reform efforts seek to strengthen the use of private litigation. Private suits have long been championed as a necessary mechanism not only to compensate investors for harms they suffer from financial frauds but also to enhance deterrence of wrongdoing. However, in recent years there has been a chorus calling for reform, singing a distinctly deregulatory tune and calling for serious restraints on private litigation as a vehicle for protecting investors. In this revisionist story, securities class action suits were cast as the villain that placed U.S. capital markets at a serious competitive disadvantage without producing any net be...
This Article proposes a new approach to monitoring executive compensation. While the public seems... more This Article proposes a new approach to monitoring executive compensation. While the public seems convinced that executives at public corporations are paid too much, so far attempts to rein in executive compensation have met with little success. Several approaches have been tried – requiring large pay packages to consist predominantly of incentive pay, new procedures for approving pay, mobilization of public outrage at giant compensation packages. None, however, has stemmed the growth of executive compensation, or convinced opponents of large pay packages that such pay is either fair or deserved. Here we suggest a new approach, one that turns to an unlikely agency to oversee executive compensation: the courts. Foes of high executive compensation have generally dismissed the courts as ineffective allies in curbing executive compensation, reasoning that courts have never wished to become involved in pay decisions. We show, however, that at several points over the last century, courts ...
We develop a theory to explain the uses and abuses of representative shareholder litigation based... more We develop a theory to explain the uses and abuses of representative shareholder litigation based on its two most important underlying characteristics: the multiple sources of the legal rights being redressed (creating dynamic opportunities for arbitrage) and the ability of multiple shareholders to seek to represent the collective group in such litigation (creating increased risk of litigation agency costs by those representatives and their attorneys). Placed against the backdrop of controlling managerial agency costs, our theory predicts that: (1) the relative strength of the different forms of shareholder litigation will shift over time; (2) these shifts can result in new avenues for the expression of shareholder litigation power; (3) new agents will emerge to act on shareholders’ behalf when these shifts occur (or old agents will put on new hats); and (4) a new set of principal-agent costs resulting from litigation will arise out of these new relationships, leading to recurrent q...
Financial Analysts Journal
Hedge fund activism is a new form of arbitrage. Using a large hand-collected data set from 2001 t... more Hedge fund activism is a new form of arbitrage. Using a large hand-collected data set from 2001 to 2006 we find that activist hedge funds in the U.S. propose strategic, operational, and financial remedies and attain success or partial success in two-thirds of the cases. The abnormal stock return upon announcement of activism is approximately seven percent, with no reversal during the subsequent year. Target firms experience increases in payout, operating performance, and higher CEO turnover after activism. We also find large positive abnormal return to the self-reported hedge fund activists during our sample period. The abnormal return significantly exceeds the returns to all hedge funds, the returns to equity-oriented hedge funds and is robust to alternative risk adjustments and selection biases.
The Journal of Finance
Using a large hand-collected data set from 2001 to 2006, we find that activist hedge funds in the... more Using a large hand-collected data set from 2001 to 2006, we find that activist hedge funds in the United States propose strategic, operational, and financial remedies and attain success or partial success in two-thirds of the cases. Hedge funds seldom seek control and in most cases are nonconfrontational. The abnormal return around the announcement of activism is approximately 7%, with no reversal during the subsequent year. Target firms experience increases in payout, operating performance, and higher CEO turnover after activism. Our analysis provides important new evidence on the mechanisms and effects of informed shareholder monitoring. Copyright (c) 2008 The American Finance Association.
SSRN Electronic Journal, 2000
ABSTRACT When do American CEOs have covenants not to compete (CNCs) in their employment contracts... more ABSTRACT When do American CEOs have covenants not to compete (CNCs) in their employment contracts? To answer this question, we collected a random sample of nearly 1000 CEO employment contracts for 500 companies randomly selected from the S&P 1500 for the time period 1996 to 2010. Our main findings are very revealing. First, our analysis shows that CEO’s are less likely to have CNCs in their employment contracts if the contracts are being enforced in jurisdictions that do not permit strong CNC clauses. Thus, contracts that are likely to be enforced in California are much less likely to include non-compete clauses as its state courts will not enforce those provisions. Second, there is a significant trend toward greater usage of CNC clauses in CEO employment contracts over time. This suggests that employers are more aware than ever of the importance of using CNC clauses and confirms other scholars’ assumptions that, at least in one context, these clauses are used increasingly by employers. Third, there is strong path dependence in the use of CNC clauses: if a company used one in a prior CEO employment contract, then it is much more likely to insist on one in a later contract. Next, longer term contracts are more likely to have CNC clauses than short term contracts. This is likely because the firm has more firm specific investment in CEOs that stay for longer periods. Finally, we find that more profitable firms are more likely to use noncompete provisions in their CEO’s employment contract suggesting that for these firms the risk of harm from a departing CEO may simply be more acute than with other firms.
To conduct a cost-benefit analysis for social policies related to physically or psychologically a... more To conduct a cost-benefit analysis for social policies related to physically or psychologically addictive goods such as tobacco or gambling, the authors propose an adjustment to consumer surplus, the difference between the maximum consumers will pay for a good and what they actually pay.
Journal of official statistics
Surveys have often employed two different self-report formats when gathering information on a ser... more Surveys have often employed two different self-report formats when gathering information on a series of behaviors or events: 1) a yes–no grid format (answer “yes” or “no” if the behavior or event has occurred) or 2) a multiple response list format (“select all that apply”). In a series of five web-based experiments, these two behavioral self-report formats were compared. We found consistent and significant differences – using yes–no grids yielded higher endorsement rates than obtained using multiple response list formats. These differences were obtained regardless of topic or language and country of residence of respondents.
Underage Drinking Underage drinking is a widespread offense that can have serious physical, neuro... more Underage Drinking Underage drinking is a widespread offense that can have serious physical, neurological, and legal consequences. Problematically, it has become quite commonplace. The Office of Juvenile Justice and Delinquency Prevention (OJJDP) works to eliminate underage consumption of alcohol and provide guidance for communities developing prevention and treatment programs. OJJDP created the underage drinking bulletin series to educate practitioners and policymakers about the problems youth face when they abuse alcohol and to provide evidence-based guidelines. The series presents findings from a study on preventing underage drinking in the Air Force and a literature review of the effects and consequences of underage drinking, best practices for community supervision of underage drinkers, legal issues surrounding underage drinking, and practice guidelines for working with underage drinkers. The series highlights the dangers of un-derage drinking. Hopefully, the informa-tion it pro...
Derivative suits, long the principal vehicle for discussions about representative litigation in c... more Derivative suits, long the principal vehicle for discussions about representative litigation in corporate and securities law, now share the stage with younger cousins - securities fraud class actions and state law fiduciary duty class actions. At the same time alternative governance vehicles - independent directors, auditors and other reforms that have followed in the wake of Enron - potentially diminish the relative place of litigation such as derivative suits. This article presents data from all derivative suits filed in Delaware over a two-year period. We find a relatively small number, certainly as compared to fiduciary class action and securities fraud class actions. Unlike these other representative suits, derivative suits are used for both public and close corporations. They arise usually in a duty of loyalty context. Contrary to earlier studies, we do not find evidence that these cases are strike suits yielding little benefit. Instead, roughly 30% of the derivative suits pro...
The PSLRA's lead plaintiff provision was adopted in order to encourage large shareholders wit... more The PSLRA's lead plaintiff provision was adopted in order to encourage large shareholders with claims in a securities fraud class action to step forward to become the class' representative. Congress' expectation was that these investors would actively monitor the conduct of a securities fraud class action so as to reduce the litigation agency costs that may arise when class counsel's interests diverge from those of the shareholder class. Proponents of the provision claimed that there would be substantial benefits from having institutional investors serve as lead plaintiffs. Now, ten years later, the claim that the lead plaintiff is a more effective monitor of class counsel in securities fraud class actions continues to be intuitively appealing, but remains unproven. In this paper, we inquire empirically whether the lead plaintiff provision has performed as projected. We break the lead plaintiffs into five categories: public pension funds; other institutional investor...
We propose that plaintiffs in securities fraud actions should use state inspections statutes to o... more We propose that plaintiffs in securities fraud actions should use state inspections statutes to obtain discovery about potential securities fraud cases. First, we argue that the Private Securities Law Reform Act has substantially increased shareholders' difficulty in uncovering securities fraud. Next, we show that shareholders have an alternative method of investigating fraud: state inspections statutes. We then analyze cases filed under the Delaware inspection statute to examine the costs to plaintiffs of pursuing claims under this statute. We find that the statutory inspection process is a largely successful, although expensive and time-consuming, process. Nevertheless, potential plaintiffs could realize substantial benefits from utilizing inspection statutes in this manner, particularly if Delaware streamlined its inspection process to make it faster and less costly for shareholders seeking information.
In this paper, we examine whether labor groups should be allowed to use Rule 14a-8 as a mechanism... more In this paper, we examine whether labor groups should be allowed to use Rule 14a-8 as a mechanism for pursuing their interests as shareholders. We focus on the questions raised by corporate management about labor's potential conflicting roles as shareholders and workers. Using data from the 1994 proxy season, we conduct an empirical examination of the differences between shareholder resolutions proposed by labor groups and those sponsored by other investors. Our analysis focuses on shareholders' perceptions of these proposals and in particular the proposals' success in the ballot box. Our data set contains 192 shareholder proposals submitted by labor groups, public institutions, private institutions, and individuals. We include proposals covering internal and external corporate governance, compensation-related, and miscellaneous issues. We estimate regressions for the fraction of votes cast for a shareholder-sponsored corporate governance proposal including independent v...
Journal of Empirical Legal Studies
We compile the most extensive hand collected data set on all forms of M&A litigation in the U.S. ... more We compile the most extensive hand collected data set on all forms of M&A litigation in the U.S. to study the effects of lawsuit jurisdictions during a sample period (1999 and 2000) of the Fifth Merger Wave, a period characterized by an abundance of friendly one-bidder deals and the near demise of the hostile offer. We find that only about 12% of all M&A offers are challenged in the courts during this period. Almost half of the suits are filed in Delaware, while federal suits account for less than 9% of the suits in our sample. We find a very small incidence of multi-jurisdictional litigation (about 3% of all suits), unlike the recent sharp increase in such cases in the post-2008 global financial crisis period. We find that litigation filed in Delaware is less of a barrier to deal completion than cases brought in federal court. Litigation filed in federal court is associated with a significantly higher takeover premium in all offers and in completed deals, suggesting that state cour...
SSRN Electronic Journal
This study compares CEO employment contracts across two common law countries: the United States a... more This study compares CEO employment contracts across two common law countries: the United States and Australia. Although the regulatory regimes of these jurisdictions enjoy many comparable features, there are also some important institutional differences in terms of capital market, tax, and regulatory structures, which are discussed here. Debate has raged in the United States on the issue of whether executive compensation is efficient and determined at arm's length, or skewed due to a power imbalance between managers and shareholders. A comparative analysis of the kind undertaken in our study provides an additional perspective on the optimal contracting and managerial power models of executive pay in U.S. academic literature. Even if one model has greater explanatory power in the U.S. context, this will not necessarily be the case in other jurisdictions, such as Australia. In order to do our comparison, we create pairs of U.S. and Australian firms that are matched on a number of ...
University of Pennsylvania Law Review
The ongoing Great Recession has triggered numerous proposals to improve the regulation of financi... more The ongoing Great Recession has triggered numerous proposals to improve the regulation of financial markets and, most importantly, the regulation of organizations such as credit rating agencies, underwriters, hedge funds, and banks, whose behavior is believed to have caused the credit crisis that spawned the economic collapse. Not surprisingly, some of the reform efforts seek to strengthen the use of private litigation. Private suits have long been championed as a necessary mechanism not only to compensate investors for harms they suffer from financial frauds but also to enhance deterrence of wrongdoing. However, in recent years there has been a chorus calling for reform, singing a distinctly deregulatory tune and calling for serious restraints on private litigation as a vehicle for protecting investors. In this revisionist story, securities class action suits were cast as the villain that placed U.S. capital markets at a serious competitive disadvantage without producing any net be...
This Article proposes a new approach to monitoring executive compensation. While the public seems... more This Article proposes a new approach to monitoring executive compensation. While the public seems convinced that executives at public corporations are paid too much, so far attempts to rein in executive compensation have met with little success. Several approaches have been tried – requiring large pay packages to consist predominantly of incentive pay, new procedures for approving pay, mobilization of public outrage at giant compensation packages. None, however, has stemmed the growth of executive compensation, or convinced opponents of large pay packages that such pay is either fair or deserved. Here we suggest a new approach, one that turns to an unlikely agency to oversee executive compensation: the courts. Foes of high executive compensation have generally dismissed the courts as ineffective allies in curbing executive compensation, reasoning that courts have never wished to become involved in pay decisions. We show, however, that at several points over the last century, courts ...
We develop a theory to explain the uses and abuses of representative shareholder litigation based... more We develop a theory to explain the uses and abuses of representative shareholder litigation based on its two most important underlying characteristics: the multiple sources of the legal rights being redressed (creating dynamic opportunities for arbitrage) and the ability of multiple shareholders to seek to represent the collective group in such litigation (creating increased risk of litigation agency costs by those representatives and their attorneys). Placed against the backdrop of controlling managerial agency costs, our theory predicts that: (1) the relative strength of the different forms of shareholder litigation will shift over time; (2) these shifts can result in new avenues for the expression of shareholder litigation power; (3) new agents will emerge to act on shareholders’ behalf when these shifts occur (or old agents will put on new hats); and (4) a new set of principal-agent costs resulting from litigation will arise out of these new relationships, leading to recurrent q...
Financial Analysts Journal
Hedge fund activism is a new form of arbitrage. Using a large hand-collected data set from 2001 t... more Hedge fund activism is a new form of arbitrage. Using a large hand-collected data set from 2001 to 2006 we find that activist hedge funds in the U.S. propose strategic, operational, and financial remedies and attain success or partial success in two-thirds of the cases. The abnormal stock return upon announcement of activism is approximately seven percent, with no reversal during the subsequent year. Target firms experience increases in payout, operating performance, and higher CEO turnover after activism. We also find large positive abnormal return to the self-reported hedge fund activists during our sample period. The abnormal return significantly exceeds the returns to all hedge funds, the returns to equity-oriented hedge funds and is robust to alternative risk adjustments and selection biases.
The Journal of Finance
Using a large hand-collected data set from 2001 to 2006, we find that activist hedge funds in the... more Using a large hand-collected data set from 2001 to 2006, we find that activist hedge funds in the United States propose strategic, operational, and financial remedies and attain success or partial success in two-thirds of the cases. Hedge funds seldom seek control and in most cases are nonconfrontational. The abnormal return around the announcement of activism is approximately 7%, with no reversal during the subsequent year. Target firms experience increases in payout, operating performance, and higher CEO turnover after activism. Our analysis provides important new evidence on the mechanisms and effects of informed shareholder monitoring. Copyright (c) 2008 The American Finance Association.