We analyze the problem of dilution leading to inefficient underinvestment caused by the adverse selection problem. We assume that the market obtains information about the firm over time, but that at each date the manger possesses better information about firm prospects than does the market. We...

This paper discusses the merits of two-class voting procedures where voters are separated into classes that vote separately. A prominent example are Chapter 11 bankruptcy proceedings, where claim-holders who decide on a workout proposal are divided into classes, and the approval of the proposal...

The political choice between candidates with different redistribution policies plays out very differently in a complete financial market. When voters have the opportunity to trade election-contingent securities, we find that 1) wealth considerations have no effect on voting, so the interaction...

Regulators express growing concern over quot;predatory lending,quot; which we taketo mean lending that extracts excessive rent from borrowers. We present a rational model of consumer credit in which such lending is possible, and we identify the circumstances in which it arises with and without...

In asymmetric information models of financial markets prices (imperfectly) reveal private information held by traders. Informed insiders thus have an incentive not only to trade less aggressively but also to trade in the quot;wrongquot; direction so as to quot;confusequot; the market and...

We construct a model of trading in a financial market with an insider who may or may not be informed about the fundamentals. Rational traders called followers possess part of the private information of the insider (which the market makers do not possess) and trade on this information. This...

We analyze proxy fights where privately informed shareholders are uncertain about the management ability of the raider. We show that the shareholders vote towards compensating for the initial bias formed by supermajority amendments and the shares that the incumbent controls. Consequently, the...

In this paper, we present a model of takeover bidding. Grossman and Hart (1980a) argue that small shareholders in a diffusely held firm would hold on to their shares rather than tendering and earn the higher post takeover return. This quot;free riderquot; problem precludes profitable takeovers...

We study the role of shareholder information in affecting the decision whether to tender one's shares when a takeover bid is announced. In the context of the well-known quot;free-riderquot; problem associated with the takeover of widely held firms, we demonstrate that profitable takeovers are...

We investigate the security design problem in an initial public offering (IPO). In line with Rock~(1986), we consider a situation in which some investors are better informed than others about the prospects of the firm, resulting in a winner's curse problem. To raise capital, the owners of the...