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Capital Structure and Corporate Governance: The Role of Hybrid Financial Instruments

ISBN13: 9789041148438
Published: August 2013
Publisher: Kluwer Law International
Country of Publication: The Netherlands
Format: Hardback
Price: £97.00

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Despite a clear distinction in law between equity and debt, the results of such a categorization can be misleading. The growth of financial innovation in recent decades necessitates the allocation of control and cash-flow rights in a way that diverges from the classic understanding.

Some of the financial instruments issued by companies, so-called hybrid instruments, fall into a grey area between debt and equity, forcing regulators to look beyond the legal form of an instrument to its practical substance.

This innovative study, by emphasizing the agency relations and the property law claims embedded in the use of such unconventional instruments, analyses and discusses the governance regulation of hybrids in a way that is primarily functional, departing from more common approaches that focus on tax advantages and internal corporate control.

The author assesses the role of hybrid instruments in the modern company, unveiling the costs and benefits of issuing these securities, recognizing and categorizing the different problem fields in which hybrids play an important role, and identifying legal and contracting solutions to governance and finance problems. The full-scale analysis compares the U.K. law dealing with hybrid instruments with the corresponding law of the most relevant U.S. jurisdictions in relation to company law.

The following issues, among many others, are raised:-

  • decisions under uncertainty when the risks of opportunism of the parties is very high;
  • contract incompleteness and ex post conflicts;
  • protection of convertible bondholders in mergers and acquisitions and in assets disposal;
  • use of convertible bonds to reorganise and restructure a firm;
  • timing of the conversion and the issuer’s call option;
  • majority-minority conflict in venture capital financing;
  • duty of loyalty;
  • fiduciary duties to preference shareholders; and
  • financial contract design for controlling the board’s power in exit events.
Throughout, the analysis includes discussion, comparison, and evaluation of statutory provisions, existing legal standards, and strategies for protection. It is unlikely that a more thorough or informative account exists of the complex regulatory problems created by hybrid financial instruments and of the different ways in which regulatory regimes have responded to the problems they raise.

Because business parties in these jurisdictions have a lot of scope and a strong incentive to contract for their rights, this book will also be of uncommon practical value to corporate counsel and financial regulators as well as to interested academics.

Banking and Finance
Introduction. Part I: Regulatory Issues of Hybrid Financial Instruments: The Classification Approach.
1. A Historical Perspective.
2. Distinguishing between Equity and Debt.
3. Setting the Theoretical Background. Part II: Governance Regulation of Hybrid Financial Instruments: The Functional Approach.
4. From the Classification to the Functional Approach.
5. Significant Corporate Decisions.
6. Financing through Hybrid Instruments: Risks of Opportunism and Legal Strategies for Mitigation.
7. Control Transactions.
8. Conclusive Considerations. Bibliography. Table of Cases. Table of Legislation. Index.

Series: International Banking and Finance Law Series

The Law and Governance of the Asian Infrastructure Investment Bank ISBN 9789403506319
Published November 2018
Kluwer Law International
Rethinking Regulation of International Finance: Law, Policy and Institutions ISBN 9789041188380
Published January 2018
Kluwer Law International
Standby Letters of Credit in International Trade ISBN 9789041145604
Published December 2012
Kluwer Law International
From Crisis to Crisis: The Global Financial System and Regulatory Failure ISBN 9789041133540
Published September 2011
Kluwer Law International
Structured Finance, On from the Credit Crunch: The Road to Recovery ISBN 9789041127877
Published October 2009
Kluwer Law International
International Financial System: Policy and Regulation ISBN 9789041128683
Published January 2009
Kluwer Law International
Securitization Law and Practice: In the Face of the Credit Crunch ISBN 9789041127150
Published August 2008
Kluwer Law International
International Financial System: Policy and Regulation ISBN 9789041127464
Published June 2008
Kluwer Law International
Price on Application
Banking Laws in China ISBN 9789041125194
Published June 2007
Kluwer Law International
International Securities Markets: Insider Trading Law in China ISBN 9789041125576
Published September 2006
Kluwer Law International
United States Securities Law: A Practical Guide 3rd ed ISBN 9789041123626
Published August 2006
Kluwer Law International
Innovation in Securitisation Yearbook 2006 ISBN 9789041125330
Published June 2006
Kluwer Law International
The European Central Bank ISBN 9789041106865
Published May 1997
Kluwer Law International