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University of Iowa News Release

April 1, 2003

Historic Article to Be Discussed at UI Law Symposium

"Mechanisms of Market Efficiency," one of the most significant articles in the field of corporate governance law, will be reexamined 20 years after its writing in this year's Journal of Corporation Law Symposium at the UI College of Law on Friday, April 4.

The symposium begins at 8:30 a.m. in the Student Lounge on the fourth floor of the Boyd Law Building.

The article, published in 1984 in the Virginia Law Review, was one of the first to take the principles of efficient market theory and integrate them with corporate law, according to Hillary A. Sale, UI law professor and advisor to the Journal of Corporation Law who is coordinating the symposium.

The article has had a dramatic impact on corporate scholarship and on the laws that oversee corporate governance. For example, one of the implications frequently drawn from the article is the theory that a company's stock price accurately represents its value. In a world in which that theory is accepted, measures that focus on stock price were then viewed as good for shareholders, and that theory has been incorporated into corporate policies at many corporations. For example, the compensation of corporate executives has been tied to company performance as measured by stock prices. The result has been a focus on stock options as a larger part of their executives' compensation packages.

"But this over-emphasis on stock prices has led corporations astray," said Sale, because too many executives took actions that led to a short-term increase in share price to increase their own compensation package but were ultimately bad for the long-term health of the corporation. This phenomenon is frequently referred to as earnings management.

The JCL symposium will update the efficient market hypothesis and its role in corporate law and theory.

"We hope to provide a varied set of viewpoints and capture a new generation of thinking about market efficiency," said Sale.

Among those who will attend the symposium are the article's writers, Ron Gilson and Reinier Kraakman. Today, Kraakman teaches at Harvard and Gilson at Stanford. They will review their article with 20 years of hindsight and offer their updated ideas for the theory.

Also participating will be some of the top corporate governance legal thinkers in the country, including William Allen of New York University, Allen Ferrell, Howell Jackson and Guhan Subramanian of Harvard, Herb Hovenkamp of UI, Paul Mahoney of the University of Virginia, Robert Sitkoff of Northwestern, Lynn Stout of UCLA, J.B. Heaton of Duke. Saul Levmore, dean of the University of Chicago law school, will speak during a luncheon address.

Funding for the symposium is being in provided in part by a $25,000 grant from the Alfred P. Sloan Foundation.

Those interested in attending should contact Hillary A. Sale at (319) 335-9225.

STORY SOURCE: University of Iowa News Service, 300 Plaza Centre One, Iowa City, Iowa 52242-2500.

MEDIA CONTACT: Tom Snee, 319-384-0010, tom-snee@uiowa.edu.

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