For years, academic experts have championed the widespread adoption of the “Fama-French” factors in legal settings. Factor models are commonly used to perform valuations, performance evaluation and event studies across a wide variety of contexts, many of which rely on data provided by Professor Kenneth French. Yet these data are beset by a problem that the experts themselves did not understand: In a companion article, we document widespread retroactive changes to French’s factor data. These changes are the result of discretionary changes to the construction of the factors and materially affect a broad range of estimates. In this Article, we show how these retroactive changes can have enormous impacts in precisely the settings in which experts have pressed for their use. We provide examples of valuations, performance analysis, and event studies in which the retroactive changes have a large—and even dispositive—effect on an expert’s conclusions.
Bankruptcy
We wish to thank Ken Ayotte, Vince Buccola, Douglas Baird, Jared Ellias, Saul Levmore, Alan Schwartz, and David Skeel for helpful comments. We also thank Julian Gale, Silvia Moreno, and Leonor Suarez for excellent research assistance. The Richard Weil Faculty Research Fund and the Paul H. Leffmann Fund provided generous support.
On June 11, 2020, the Hertz Corporation introduced a new strategy for bankruptcy financing.
There is no such thing as a free bankruptcy.
I am most grateful to Matthew Stoker for assistance and the Sarah Scaife Foundation, the Lynde and Harry Bradley Fund, and the John M. Olin Foundation for support.
For particularly helpful comments, I am grateful to Margaret Blair, George S. Geis, Jeffrey N. Gordon, Allan L. Gropper, Rich Hynes, Stacey Iris, Robert J. Jackson Jr, Alvin K. Klevorick, Jody S. Kraus, Jonathan M. Landers, Paul G. Mahoney, Richard G. Mason, Richard A. Posner, Randall S. Thomas, and William H. Widen. This Article also benefited from discussions at faculty workshops at Vanderbilt University Law School and the University of Virginia School of Law. Gabriel Gillett provided excellent research assistance.
I thank Daniel Abebe, Barry E. Adler, Kenneth Ayotte, Adam B. Badawi, Douglas G. Baird, Omri Ben-Shahar, Erin M. Casey, Stephen Choi, Lee Anne Fennell, Joseph A. Grundfest, M. Todd Henderson, William Hubbard, Mitchell Kane, Ashley Keller, Randall L. Klein, Saul Levmore, Douglas Lichtman, Anup Malani, Troy McKenzie, Jon D. Michaels, Anthony Niblett, Randal C. Picker, Eric Posner, Robert K. Rasmussen, Andres Sawicki, Naomi Schoenbaum, Julia Simon-Kerr, Richard Squire, Lior Strahilevitz, Matthew Tokson, George G. Triantis, Noah Zatz, participants at the Annual Meeting of the American Law and Economics Association, participants at the Annual Meeting of the Midwestern Law and Economics Association, participants at the University of Chicago Law School Faculty Works-in-Progress Workshop, participants at the University of Southern California Center in Law, Economics, and Organization Workshop, and the faculties of Columbia Law School, Cornell Law School, Emory Law School, Marquette University Law School, Stanford Law School, the University of Alabama School of Law, University of California Irvine School of Law, the University of Chicago Law School, University of Colorado Law School, University of Georgia Law School, the University of Minnesota Law School, and Vanderbilt University Law School for helpful comments and discussion.
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