This paper develops an agency model in which stock-based compensation is a double-edged sword, inducing managers to exert productive effort but also inducing managers to divert valuable firm resources to misrepresent performance. We examine how the potential for manipulation affects the...

This paper examines how information becomes reflected in prices when investment decisions are delegated to fund managers whose tenure may be shorter than the time it takes for their private information to become public. We consider a sequence of managers, where each subsequent manager inherits...

A commonly held view in the financial and economic literature is that quot;free cash flow is badquot; in the sense that, given the opportunity, shareholders would always choose to minimize its existence. This view of the world has motivated economists such as Jensen (1988, 1993) to conclude that...

In a multidivision firm, does the market collect less value-relevant information when the divisions are treated as a unit rather than when each division trades as a separate firm? We find that organizational form has a nontrivial impact on information collection. In particular, we find that a...

In countries with a weak legal system and a high level of corruption it has been shown that political connections are valuable to a corporation. This paper explores whether political connections are also important in the U.S., which has well-developed financial markets as well as a strong legal...

Firms targeted by Securities and Exchange Commission enforcement actions for fraudulent financial misrepresentation, on average, experience a significant drop in shareholder value. This paper highlights the additional impact of such enforcement actions on the shareholders of rival firms....

In this paper we offer an explanation for the empirical anomaly that most raiders do not acquire the maximum possible toehold prior to announcing a takeover bid. By endogenously modeling the target value following an unsuccessful takeover we demonstrate that a raider may optimally choose to...

We offer an explanation for why raiders do not acquire the maximum possible toehold prior to announcing a takeover bid. By endogenously modeling the target firm's value following an unsuccessful takeover we demonstrate that a raider may optimally acquire a small toehold even if the acquisition...

In this paper we analyze the resource allocation decision of a manager of a multi division firm whose compensation is based on the firms stock price. We find that internal investments exhibit a positive correlation across the firms divisions. In particular, when two divisions are put into one...

This paper examines how information becomes reflected in prices when investment decisions are delegated to fund managers whose tenure may be shorter than the time it takes for their private information to become public. We consider a sequence of managers, where each subsequent manager inherits...