"A firm's termination leads to bankruptcy costs. This may create an incentive for outside stakeholders or the firm's debtholders to bail out the firm as bankruptcy looms. Because of this implicit guarantee, firm shareholders have an incentive to increase volatility in order to exploit the...

"We develop a model where dividend payout, investment and financing decisions are made by managers who attempt to maximize the rents they take from the firm. But the threat of intervention by outside shareholders constrains rents and forces rents and dividends to move in lockstep. Managers are...