Diversified firms trade at a discount relatively to similar single-segment firms. We argue in this paper that this observed discount is not per se evidence that diversification destroys value. Firms choose to diversify. Firm characteristics, which make firms diversify, might also causethem to be...

We examine how different economies would design an optimal corporate governancesystem structured from three of the main mechanisms of corporate governance (managerial ownership, monitoring by banks, and disciplining by the takeover market). We allow for interactions among the mechanisms. The...

Two different financial systems with some opposing features have evolved in the advanced economies, namely the insider system and the outsider system. In this paper, we provide a theoretical framework where the features of the optimal governance systemare derived as a function of economy-wide...

We argue that earnings management and fraudulent accounting have important eco-nomic consequences. In a model where the costs of earnings management are endoge-nous, we show that in equilibrium, low productivity firms hire and invest too muchin order to pool with high productivity firms. This...