This paper presents a theory of the disciplinary role of takeovers based on an explicit model of managerial incentive problems stemming from a symmetric information. It is argued that an informed raider can reduc e incentive problems by making managerial compensation more sensitive to...

This paper explores the role of testing in models of asymmetric information. The authors demonstrate conditions under which testing for underlying characteristics can overcome adverse selection problems and lead to a full-information competitive equilibrium. This paper provides a more general...