Public corporations live in a dynamic and ever-changing business environment. This Paper examines how courts and legislators should choose default arrangements in the corporate area to address new circumstances. We show that the interests of the shareholders of existing companies would not be...

This Paper evaluates the primary mechanisms for changing management or obtaining control in publicly traded corporations with dispersed ownership. Specifically, we analyse and compare three mechanisms: (1) proxy fights (voting only); (2) takeover bids (buying shares only); and (3) a combination...

This Paper argues that once undistorted shareholder choice is ensured – which can be done by making it necessary for hostile bidders to win a vote of shareholder support – boards should not have veto power over takeover bids. The Paper considers all of the arguments that have been offered...

We study managerial incentive provision under moral hazard in a firm subject to stochastic growth opportunities. In our model, managers are dismissed after poor performance, but also when an alternative manager is more capable of growing the firm. The optimal contract may involve managerial...

We study a continuous time model of a levered firm with fixed assets generating a cash flow that fluctuates with business conditions. Since external finance is costly, the firm holds a liquid (cash) reserve to help survive periods of poor business conditions. Holding liquid assets inside the...

We develop a model of internal governance where the self-serving actions of top management are limited by the potential reaction of subordinates. We find that internal governance can mitigate agency problems and ensure firms have substantial value, even without any external governance. Internal...

Stock-based compensation is the standard solution to agency problems between shareholders and managers. In a dynamic rational expectations equilibrium model with asymmetric information we show that although stock-based compensation causes managers to work harder, it also induces them to hide any...

We consider a setting in which insiders have information about income that outside shareholders do not, but property rights ensure that outside shareholders can enforce a fair payout. To avoid intervention, insiders report income consistent with outsiders' expectations based on publicly...

In a recent article, we have put forward a new approach to takeover law and regulatory competition. We proposed a ‘choice-enhancing’ federal intervention that would provide: (i) an optional body of substantive federal takeover law which shareholders would be able to opt into (or out of) and...

We shed new light on the corporate governance role of institutional investors in markets where concentrated ownership and business groups are prevalent. When companies have controlling shareholders, institutional investors, as minority shareholders, can play only a limited role in corporate...