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An Empirical Examination of the Governance Choices of Income Trusts


  • Drafts of this article were presented at the 2006 Annual Conference of the Canadian Law and Economics Association and the 2008 Conference on Empirical Legal Studies, the University of Michigan Law School, University of Minnesota Law School, New York University School of Law, Northwestern University School of Law, the University of Siena (workshop in law and economics involving participants from the University of Siena, Tel Aviv University, and the University of Toronto), and the University of Texas School of Law. We thank participants at these sessions as well as Benjamin Alarie, Jennifer Arlen, Stephen Choi, Kevin Davis, Marcel Kahan, Larry Ribstein, Joshua Teitelbaum, and George Triantis for their helpful comments. We also thank Karen Andreychuk, Emily Bala, Michael Bond, Dubravka Colic, Tim Ho, Rutaba Khatun, Kien La, and Yong Song for their valuable research assistance.

Edward M. Iacobucci, Faculty of Law, University of Toronto, 84 Queen's Park, Toronto, Ontario, Canada, M5S 2C5; email: Iacobucci is Osler Chair in Business Law; Anand is Associate Professor, Faculty of Law, University of Toronto.


Publicly traded trusts, known as income trusts, became very popular in recent years in Canada. Income trusts participate in a variety of industries, and do not simply fulfill specialized roles, like that of a special purpose entity in a securitization transaction. Because of the absence of mandatory statutory rules, these trusts have much greater freedom to choose particular governance terms than analogously situated corporations. In this article, we examine the individual declarations of trust (DOTs), which set out the governance regime for the firm, of 187 income trusts that listed on the Toronto Stock Exchange between 1996 and 2005. We compare private choices with respect to 25 mandatory terms found in the Canada Business Corporations Act (CBCA). Examining private choices of income trusts provides insight into the role of corporate law in supplementing/distorting private ordering in the corporate domain. On some dimensions, DOTs mimic the CBCA, but on other important dimensions, particularly remedial ones, they depart significantly from the CBCA. We also examine particular characteristics of the trust (e.g., its jurisdiction, size, industry, whether it listed as an IPO or by way of conversion from a corporation) in order to determine whether certain characteristics are associated with greater resemblance to the governance regime established in the CBCA. We find generally that certain jurisdictions (particularly Quebec) are statistically significantly and negatively correlated with CBCA provisions relative to others (Ontario), while year (2003 and beyond) is statistically significant and positively correlated with CBCA provisions. We find that industry, measured by type and one-digit SIC code, is statistically significant throughout the analysis. Firm size is also significant, though its relationship with CBCA adoption may be positive or negative depending on the particular provision in question.