Company Law Reform and Economic Analysis: Establishing Boundaries

Abstract

The recent process of company law reform has highlighted the absence of consensus over what should be the appropriate methodological basis for it. The adoption of economic analysis by the Law Commissions, and the prominence given to economic issues by the Company Law Review Steering Group, have focused attention on economic analysis. Although such analysis is well-established in other jurisdictions, notably the United States, it has proven controversial in the United Kingdom, and such controversy has, perhaps, deflected attention away from consideration of its detailed application and limitations. The articles in this issue are derived from papers originally given at an SPTL Workshop on “Company Law Reform and Economic Analysis: Establishing Boundaries”. The themes that emerge are the limitations of company law reform and the limitations of economic analysis. The limitations of company law reform are shown to result from the beneficial role that social norms consistent with economic efficiency may play, the harmful role that legal rules inconsistent with economic efficiency may play, and the difficulties that can arise in the wholesale importation of legal rules from one jurisdiction to another. The limitations of economic analysis are shown where the application of economic theory is tested against historic events, in the adoption of oversimplistic conceptual language in economic literature and the difficulties in seeking to utilise economic analysis as a detailed guide for the development of specific rules. This article concludes by setting out the implications of these conclusions for both future “law and economics” research in the field of company law and for the company law reform process itself.