State Venture Capital

Paul Rose

Governments around the world are increasingly shifting economic development expenditures to the support of early-stage businesses. In the United States, state governments have also expanded their development agencies’ mandates from primarily serving as tourism-support operations to now working as engines of small business development. This Article challenges the conventional wisdom driving the creation of state venture capital programs and argues that the structure of state venture capital is deeply flawed. Rather than remedy inequities between states and within states—for instance, in the urban/rural divide that is a feature of most states’ political economies—state venture capital is more likely to perpetuate and even exacerbate inequality. Furthermore, it introduces the potential for waste and corruption that jeopardize governmental legitimacy. From a legal perspective, state venture capital makes use of existing private financing and its accompanying legal infrastructure to channel financing and fill funding gaps, particularly for marginalized entrepreneurs. However, by co-opting private entity forms, it often impairs the administrative mechanisms designed to safeguard public funds. State venture capital also faces daunting market headwinds that make it difficult for venture financing to thrive outside of Silicon Valley and a few other venture capital hubs. Despite these challenges, state venture capital can be structured to give it better odds of success. This Article proposes reforms that can help governments create economic environments in which entrepreneurship is more likely to thrive, governance mechanisms that can foster accountability, and investment selection and contract design features that make it more likely that state venture capital programs will succeed.

Bond Trading at the Digital Frontier

Onnig H. Dombalagian

Taking Corporate Bankruptcy Fiduciary Duties Seriously

Stephen J. Lubben

The board’s fiduciary duties are the bedrock of corporate law. Bankruptcy trustees also owe fiduciary duties to the “bankruptcy estate.” But corporations in bankruptcy rarely worry about fiduciary duties, even those corporations in chapter 11 reorganization cases, when the company is supposed to act as if it were the bankruptcy trustee.

At the same time, modern chapter 11 is increasingly seen as “problematic.” Opportunism runs unchecked. This Article argues that these two points are directly connected: the underdevelopment of a corporate debtor’s fiduciary duties enables the abuses seen in modern chapter 11.

I thus use this Article to frame bankruptcy-specific corporate fiduciary duties and then identify several common instances in which the debtor-corporation’s board must act to meet those duties. This Article is the first to analyze the debtor’s fiduciary duties from a perspective that integrates the literature on chapter 11 corporate governance and broader corporate bankruptcy policy considerations. While the articles identifying problems with modern chapter 11 are legion, those offering solutions are rare.

CEO's Endorsements of Stakeholder Values: Cheap Talk or Meaningful Signal? An Empirical Analysis

Jens Dammann & Daniel Lawrence

In 2019, 181 CEOs of major companies rocked the corporate governance world when they signed the Business Roundtable Statement, endorsing the idea that corporations are meant to serve all their constituencies and not just their shareholders.

Reactions were sharply divided. Some applauded the Roundtable Statement and viewed it as evidence that U.S. businesses are moving towards greater emphasis on stakeholder values. Others criticized the Roundtable Statement as cheap talk and even voiced concerns that it might allow CEOs to benefit themselves under the guise of protecting stakeholders.

We contribute to that debate by analyzing the Roundtable Statement empirically, using a combination of commercial datasets and hand-collected data. Our analysis yields several key insights.

First, we show that firms that signed the Roundtable Statement in 2019 were slightly more likely than other public corporations to terminate their business activities in Russia following Russia’s 2022 invasion of Ukraine. Thus, on one of the key issues of our time, signing the Roundtable Statement predicted future behavior in compliance with one of the fundamental non-financial values (human dignity) embraced by the Roundtable Statement.

We also show that signing the Roundtable Statement correlates with firms’ current and future ESG performance. Using Refinitiv ESG scores, we find that the 2019 signatories of the Roundtable Statement were, at the time, more committed to employees, communities, human rights, responsible resource use, and low emissions than other corporations. Furthermore, signing the Roundtable Statement is associated with high future ESG scores in most of these fields. That is particularly true for community- and employee-related conduct, where signing the Roundtable Statement predicted improvements in already high ESG scores in subsequent years.

Finally, when the Roundtable Statement was originally published on August 19, 2019, corporations whose CEOs had signed the Roundtable Statement experienced positive abnormal stock market returns relative to other corporations. However, we also find some evidence that the statistical significance of this last finding may be due to the cross- sectional correlation of stock returns and must, therefore, be interpreted with great caution.