Empirical Legal Studies

Robustness Checks (and Replication)

Interesting discussion (here) about various motivations for and objectives of robustness checks. Lurking between the lines of the discussion is an effort to distinguish "standard" robustness checks from "replication" efforts. As Gelman (Columbia-Statistics) notes: "For example, maybe you have discrete data with many categories, you fit using a continuous regression model which makes your analysis easier to perform, more flexible, and also easier to understand and explain—and then it makes sense to do a robustness check, re-fitting using ordered logit, just to check that nothing changes much." From my way of thinking, robustness checks evidence (to editors or readers) that a paper's main substantive findings are not solely "model- or assumption-specific."

Shareholder Voting: A Empirical Literature Review

Anyone writing (or contemplating writing projects) in the shareholding voting space will likely find Randall Thomas (Vanderbilt) & Patrick Tricker's (Davis & Hartman LLP) recent paper, Shareholder Voting in Proxy Contests for Corporate Control, Uncontested Director Elections and Management Proposals: A Review of the Empirical Literature, quite helpful. The paper is a useful resource for those looking for a one-stop comprehensive literature review. (The paper also identifies possible under-explored areas.) One of the paper's main take-aways is that while predictions from prevailing theory may be clear, empirical tests these theory-driven predictions reveal more nuance and comparatively less clarity. The paper's abstract follows.

“This paper surveys the empirical literature on shareholder voting, specifically on votes related to contested and uncontested director elections and on management proposals. While much of current theory depicts shareholder votes as an ineffective control on the board’s decision making, the empirical literature paints a more nuanced picture. When a proxy contest breaks out, shareholders wield immense influence. These contests tend to have significant benefits for the corporation, including facilitating a change in management, reducing unnecessary liquidity, and prompting the payout of dividends. Even in uncontested director elections, shareholders’ decisions to vote for or withhold their vote reflect the company’s performance. The decision to withhold has some albeit slight impact on improving corporate performance going forward.

Finally, the evidence suggests that shareholders seriously scrutinize management proposals, instead of blindly following management. ISS and institutional investors have led the charge in this area. For votes on mergers and acquisitions, shareholders do not block all bad acquisitions but do push the scales towards maximizing company value. For management compensation proposals, shareholders appear largely unconcerned with the company’s performance but deeply concerned with how the plan dilutes share value. Overall, shareholder voting plays a significant role in corporate management that deserves further research.”

Gelman and Carlin's 'Type M' and 'Type S' Errors and Stata's rdesigni

Increasingly "fed up" the concepts of "'power,' 'type 1 error,' and 'type 2 error,' because all these are defined in terms of statistical significance," Andrew Gelman (Columbia--Statistics) developed and advanced "Type S (Sign) and Type M (Magnitude) Errors." Gelman, conceding that "concepts of Type S and Type M errors are not perfect," nonetheless concludes they represent a helpful "step forward." Gelman (with John Carlin) described his thinking in a 2014 paper, Beyond Power Calculations: Assessing Type S (Sign) and Type M (Magnitude) Errors. As well, the paper is summarized in a more recent blog post (here).

While few are ready to completely jettison more traditional power testing, Gelman and Carlin's alternative "Type S and Type M" struck many as a useful complement. Additional evidence of the possible promise of "Type S" and "Type M" tests is found in the recent release of Daniel Klein's user-written Stata command add-on, entitled rdesigni. (For some background on the new rdesigni command click here for a recent list-serv discussion.)

Those already equipped with Stata and wanting to explore this new command need only execute to following commend (with Stata launched):

ssc install rdesigni

An Initial Look At The SEC's New Settlement Admissions Policy

Bowing to building public pressure for greater transparency and accountability, the SEC announced in September 2013 a "new approach" requiring "admissions" where a "special need for public accountability and acceptance of responsibility" existed. While the SEC touts its new policy as "transformative," a closer look at what has happened uncovers somewhat mixed results.

One initial "closer look" at the new SEC policy is found in a recent paper, An Empirical Study of Admissions in SEC Settlements, by Verity Winship (Ill.) and Jennifer Robbennolt (Ill.). While their treatment of the 99 separate "stand-alone" SEC settlements that required some form of an admission (and announced between 2010 and 2016) is largely descriptive, their paper help clears the way for more extensive work in the future. Equally helpful is the paper's more granular analysis of the terms of the settlements. A summary of the paper's key takeaway follows.

“'Transformative' is a difficult standard to meet. The results of our study suggest that there was an uptick in the numbers of settlements that contain admissions following the changes in SEC policy. The story becomes more complex when the types of admissions are considered. Factual admissions appeared in all but one of the settlements we identified, and these factual admissions have a role both in related legal actions and in providing a public account. These admissions, however, varied widely in their scope. Moreover, a closer look at the underlying agreements identifies some admissions of wrongdoing, knowledge, and recklessness. It is hard, however, to conclude that the new approach has been a transformation if that means large numbers of targets in big cases admitting wrongdoing. There is room, in other words, for more admissions across the board, but also for more symbolic victories in high-profile cases."