Baker (2002) has demonstrated theoretically that the quality of performance measures used in compensation contracts hinges on two characteristics: noise and distortion. These criteria, though, will only be useful in practice as long as the noise and distortion of a performance measure can be...

This discussion paper resulted in a publication in the 'Journal of Economics and Management Strategy', forthcoming.<P> Distorted performance measures in compensation contracts elicit suboptimal behavioral responses that may even prove to be dysfunctional (gaming). This paper applies the empirical...</p>

In this paper we introduce flexibility as an economic concept and apply it to the firm’ssecurity issuance decision and capital structure choice. Flexibility is the ability to makedecisions that one thinks are best even when others disagree. The firm’s management valuesflexibility because it...

We develop an economic theory of “flexibility”, which we interpret as the discretion orability to make a decision that others disagree with. We show that flexibility is essentiallyan option for the decisionmaker, and can be valued as such. The value of the flexibilityoption is decreasing in...

We propose a simple network–based methodology for ranking systemically important financial institutions. We view the risks of firms –including both the financial sector and the real economy– as a network with nodes representing the volatility shocks. The metric for the connections of the...

This discussion paper resulted in a publication in the <I>Journal of Economic Dynamics & Control</I>. Volume 33(11), pp. 1912-1928.<P> This paper formalizes the idea that more hedging instruments may destabilize markets when traders are heterogeneous and adapt their behavior according to experience based...</p></i>

We allow the preference of a political majority to determine boththe corporate governance structure and the division of profits betweenhuman and financial capital. In a democratic society where financialwealth is concentrated, a political majority may prefer to restraingovernance by dispersed...

We characterize the relation between corporate asset structure and capital structure by exploitingvariation in the salability of tangible assets. Theory suggests that tangibility increases borrowingcapacity because it allows creditors to more easily repossess a firm’s assets. Tangible assets,...

This discussion paper led to a publication in <A href="http://www.sciencedirect.com/science/article/pii/S1544612310000176"><I>Finance Research Letters</I></A>, 7(2), 127-34.<P>We argue that the recent corporate governance reform in the Netherlands provides a natural experiment to explore the impact of changes in corporate governance on financing policy. We find that, relative to a...</p></i></a>

This discussion paper resulted in a publication in <I>The North American Journal of Economics and Finance</I> (2014). Volume 29(C), pages 381-401.<P> This paper investigates the stock returns and volatility size effects for firm performance in the Taiwan tourism industry, especially the impacts arising...</p></i>