CORPORATE LAW'SLIMITS My logic here is that the current wisdom and theory tell us that when the core of corporate law is atrocious, and substitutes unavailable, complex firms cannot be stabilized. This is true, and the empirical contributions here are considerable. But the converse of the current wisdom is believed as well, although it is false: Bad law impedes separation, but when there's no separation, law could be good with something else impeding that separation, not corporate law. Since several nations have protective corporate law but nevertheless have very little separation, we need some new theory to explain why A roadmap for this Article: I outline in Part I the quality of corporate law argument and why it is important. In Part Il I show why when potential dissipator managerial agency costs are perniciously high in a society, but containable by dominant stockholders, corporate law quality is irrelevant or tertiary: even if it's good, ownership will not separate from control.(I distinguish two types of agency costs: those that shift value away from stockholders to controllers and those that dissipate shareholder value. )Conventional corporate law can contain managerial agency costs due to thievery, but does not directly contain managerial agency costs due to mismanagement. Concentrated ownership will persist in firms in high- agency-cost nations even if comventional corporate law quality is high as ong as the owner can contain enough of these costs. In Part Ill I show why the data indicates that the quality of corporate law argument, although it explains transition economies nicely, is over-stated for several of the worlds richest nations: in too many of them basic shareholder protections seem adequate, stock can be and is sold, but ownership neverthel doesnt separate from control. Something else has made concentrated control persist. I speculate what that might have been Lastly, I conclude, High quality, protective corporate law is a good institution for a society to have. It lowers the costs of building strong, large business enterprises. It can prevent, or minimize, controlling stockholder diversions, a necessary condition for separation. But among he world's wealthier nations, it doesnt primarily determine whether its worthwhile to build those enterprises It's a tool, not the foundationCORPORATE LAW’S LIMITS 5 My logic here is that the current wisdom and theory tell us that when the core of corporate law is atrocious, and substitutes unavailable, complex firms cannot be stabilized. This is true, and the empirical contributions here are considerable. But the converse of the current wisdom is believed as well, although it is false: Bad law impedes separation, but when there’s no separation, law could be good with something else impeding that separation, not corporate law. Since several nations have protective corporate law but nevertheless have very little separation, we need some new theory to explain why. * * * A roadmap for this Article: I outline in Part I the quality of corporate law argument and why it is important. In Part II I show why when potential dissipatory managerial agency costs are perniciously high in a society, but containable by dominant stockholders, corporate law quality is irrelevant or tertiary: even if it’s good, ownership will not separate from control. (I distinguish two types of agency costs: those that shift value away from stockholders to controllers and those that dissipate shareholder value.) Conventional corporate law can contain managerial agency costs due to thievery, but does not directly contain managerial agency costs due to mismanagement. Concentrated ownership will persist in firms in high￾agency-cost nations even if conventional corporate law quality is high as long as the owner can contain enough of these costs. In Part III I show why the data indicates that the quality of corporate law argument, although it explains transition economies nicely, is over-stated for several of the world’s richest nations: in too many of them basic shareholder protections seem adequate, stock can be and is sold, but ownership nevertheless doesn’t separate from control. Something else has made concentrated control persist. I speculate what that might have been. Lastly, I conclude. High quality, protective corporate law is a good institution for a society to have. It lowers the costs of building strong, large business enterprises. It can prevent, or minimize, controlling stockholder diversions, a necessary condition for separation. But among the world’s wealthier nations, it doesn’t primarily determine whether it’s worthwhile to build those enterprises. It’s a tool, not the foundation