207 research outputs found
Common Ownership, Competition, and Corporate Governance
No full textThis paper presents a theoretical framework for determining the ownership stakes held by financial investors in companies competing in the same product market, or, in other words, the level of common ownership. In our model, the primary motivation for these investors is the anticipation of capital gains resulting from the impact of common ownership on product market competition, which leads to increased profitability for the firms involved. On the other hand, common ownership undermines effective corporate governance by reducing monitoring, increasing extraction of private benefits by the manager, and inhibiting investments that contribute to firm value. These negative effects on corporate governance act as limiting factors, ultimately determining the equilibrium level of common ownership
Internal financing, managerial compensation and multiple tasks
No full textWe study the optimal capital budgeting policy of a firm taking into account the choice between internal and external financing. The manager can dedicate effort either to increase short-term profitability, thus generating greater immediate cash-flow, or to improve long-term perspectives. When both types of effort are observable, low productivity firms end up using internal funds, while high productivity firms use external capital markets. When effort to boost short-term cash flow is observable, while effort to boost long-term profitability is not, non-monotonic policies may be optimal. In such cases financing switches back and forth between internal and external funds as the quality of the project increases. However, when the effort to improve long-term protability is very effective the optimal financial policy is monotonic
even under incomplete information
Common ownership, competition and corporate governance
No full textThis paper presents a theoretical framework for determining the ownership stakes held by financial investors in companies competing in the same product market, commonly referred to as the level of common ownership. In our model, these investors are primarily motivated by the anticipation of capital gains resulting from the impact of common ownership on product market competition, which enhances profitability for the firms involved. However, common ownership also undermines effective corporate governance by diminishing blockholders' incentives to engage in value-enhancing behaviors, such as managerial monitoring. These adverse effects on corporate governance act as limiting factors, ultimately determining the equilibrium level of common ownership
Subprime e BP: due volti della crisi
No full textL'articolo discute brevemente il tema della responsabilità sociale dell'impresa alla luce della crisi finanziaria e dell'oil spill della British Petroleum
Reallocation of corporate resources and managerial incentives in internal capital markets
No full textDiversified firms often trade at a discount with respect to their focused counterparts. The
literature has tried to explain the apparent misallocation of resources with lobbying activities
or power struggles. We show that diversification can destroy value even when resources are
efficiently allocated ex post. When managers derive utility from the funds under their purview,
moving funds across divisions may diminish their incentives. The ex ante reduction in managerial
incentives can more than offset the increase in firm value due to the ex post efficient reallocation
of funds. This effect is robust to the introduction of monetary incentives. Moreover we show
that asymmetries in size and growth prospects increase the diversification discount
Tender Offers and Leverage
No full textThis paper examines the role of leverage in tender offers for widely held firms.
We show that a leveraged “bootstrap acquisition” can implement an outcome
that—from an economic perspective—is quite similar to the outcome implemented
by the Grossman-Hart dilution mechanism. To raise the funds for the takeover,
the raider initially sets up a new acquisition subsidiary that issues debt backed by
the target’s assets and future cash flows. In the first step of the acquisition, the
raider acquires a majority of the target’s stock through a tender offer. In a second
step, the target is merged with the raider’s indebted acquisition subsidiary. The
fact that the acquisition subsidiary is indebted lowers the combined firm’s share
value and thus the incentives for target shareholders to hold out in the tender
offer. This allows the raider to lower the bid price, make a profit and overcome the free-rider problem
Ripensare le regole della finanza
No full textL'articolo passa brevemente in rassegna alcune delle proposte di nuova regolamentazione finanziaria avanzate in seguito alla crisi della fine del 200
Agency conflicts, ownership concentration, and legal shareholder protection
No full textThe paper analyzes the interaction between legal shareholder protection, managerial incentives, monitoring and ownership concentration. Legal shareholder protection affects the expropriation of shareholders and the blockholder's incentives to monitor. Because monitoring weakens managerial incentives, both effects jointly determine the relationship between legal protection and ownership concentration. When legal protection and monitoring are substitutes better laws weaken the monitoring incentives and the relationship between legal protection and ownership concentration is non-monotone
Why Higher Takeover Premia Protect Minority Shareholders
No full textPosttakeover moral hazard by the acquirer and free-riding by the target shareholders lead the former to buy as few shares as necessary to gain control. As moral hazard is most severe under low ownership concentration, inefficiencies arise in successful takeovers. Moreover, share supply is shown to be upward-sloping. Rules promoting ownership concentration limit both agency costs and the occurrence of takeovers. One share-one vote and simple majority are generally not optimal, and socially optimal rules need not emerge through private contracting
Economic Shocks and Populism: The Political Implications of Reference-Dependent Preferences
No full textThis paper studies electoral competition over redistributive taxes between a safe incumbent and
a risky opponent. As in prospect theory, economically disappointed voters become risk lovers,
and hence are intrinsically attracted by the more risky candidate. We show that, after a large
adverse economic shock, the equilibrium can display policy divergence: the more risky
candidate proposes lower taxes and is supported by a coalition of very rich and very
disappointed voters, while the safe candidate proposes higher taxes. This can explain why new
populist parties are often supported by economically dissatisfied voters and yet they run on
economic policy platforms of low redistribution. We show that survey data on the German
SOEP are consistent with our theoretical predictions on voters’ behavior.
JEL-Codes: H000, D700, D900
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