An Empirical Study of Corporate Default Rules and Menus in China, Hong Kong, and Taiwan

Abstract

Competing theories of default rules and menus in contract law and corporate law provide different accounts of their effects. However, empirical studies are scant, and all focus on U.S. law. Given that corporate ownership outside of the United State is usually concentrated, and institutional settings are vastly different, one might wonder whether corporate law and economic theories on default rules and menus aptly explain corporate practices in other countries. To that end, this article analyzes a unique dataset of 498 randomly sampled and hand‐coded charters of public firms in China, Hong Kong, and Taiwan. While the data do not enable us to make causal inferences, we make a descriptive contribution to the literature by examining whether corporate practices in the studied jurisdictions are consistent with the U.S. theories. The major findings are that firms often opted into menus and rarely opted out of default rules without menus, thereby supporting the minimization of transaction cost theory. However, Chinese firms may follow default rules for noneconomic reasons. Hansmann's delegation theory explains the short corporate charters observed in Taiwan, but not those in China and Hong Kong. Corporations in China, Hong Kong, and Taiwan do not appear to be systematically more pro‐minority or pro‐controller than their jurisdictions' corporate laws. This contradicts the principal‐agent theory.

Empirical Foundation of Normative Arguments in Legal Reasoning

“…See also, e.g., empirical legal studies done in the European context: Kantorowicz-Reznichenko, Kantorowicz, and Weinshall (2022), Spamann et al (2021), Engel, Goerg, andTraxler (2022), Dušek and Traxler (2024 forthcoming), Dušek (2015), Peukert et al (2022), Engel (2023), Merane, Sharma, and Stremitzer (2023) and Zac et al (2023). 4 Examples of descriptive works that have implications for theories and policies by one of us include, for instance, Hsu, Chiang, and Chang (2024 forthcoming), Chang and Miller (2024 forthcoming), Chang and Lin (2024 forthcoming), Chang and Miller (2023), Chang, Huang, and Her (2024 forthcoming), Chang et al (2023b), Lin and Chang (2022), Chang and Klerman (2022), Chang and Miller (2021), Chang and Hubbard (2021), Chang, Garoupa, and Wells (2021), Bradford et al (2021), Chang and Tu (2020), Chang and Hubbard (2019), Lin and Chang (2018), Chang, Ho, and Hsu (2016), Chang (2012a), Chang (2012b), Chang (2011), Chang (2010), andChang (2009). sophisticated research designs, attempt to identify whether race causes differences in admission rates.…”