Contracts, Markets, and Laws in the US and Japan
Edited by Zenichi Shishido
Comments on Part II: unsolved aspects of corporate governance problems
Part II mainly focuses on certain corporate governance problems that occur during periods of financial distress or reorganization processes. For the market mechanism to work properly, appropriate entry into and exit from the market are necessary. Hence, bankruptcy procedures are an important element for corporate governance, and the relationship between corporate law and bankruptcy law is a crucial point that must be examined rigorously. All four of the chapters in this section examine important aspects of this relationship. Chapter 5, “The role of debt in the governance of US business corporations” by George Triantis, focuses on the role of debt in corporate governance problems. In short, a debt contract gives the debtholder a contingent right to remove assets and possibly force liquidation in the event a borrower defaults. This chapter stresses that the connection between corporate law and bankruptcy law is a key factor in understanding the role of debt. Certain issues come to light, such as the fact that debtholder control assumes different forms depending on whether the distressed firm is also in bankruptcy proceedings, and that bankruptcy law places the decision-making debtor under the oversight of a bankruptcy judge. The chapter also stresses the fact that developments in financial markets are promoting the separation of economic and the control rights of debtholders.
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