This article analyzes the manifold situations in which the efficient-market hypothesis (EMH) has influenced—or has failed to influence—federal securities regulation and state corporate law, and the prospective roles for the EMH in these contexts. In federal securities regulation, the EMH has...

A classic theory of corporate governance holds that when cash flow is high and investment opportunities scarce, takeover threats reduce managerial self-dealing and encourage dividend payment to owners. I conduct laboratory experiments studying the effect of cash flow on selfdealing and the...

This article examines the interaction between the restructuring process of a financially distressed firm and the behavior of its manager. We analyze a situation in which a bank decides to offer a renegotiation to a distressed firm, yet the manager is reluctant to implement a restructuring even...

In this paper, we examine two acquisitions of financially distressed retailers: Federated's takeover of Macy's, and Zell Chilmark's takeover of Carter Hawley Hale. In both cases the raider purchased some of the target's outstanding debt to launch its takeover attempt. These debt purchases appear...

We develop a model in which debt forgiveness can be Pareto- efficient because it improves incentives to invest. A debt restructuring plan, however, must be unanimously approved by a multiplicity of creditors who have private information about the liquidation value of the debtor. Using mechanism...

In a simple firm value model we consider the impact of the insolvency probability on the valuation of equity and debt, which are assumed to be not publicly traded. For the case of a distressed company, which usually has high debt and low equity, we can show that the impact becomes increasingly...

This paper analyzes how combining firms into either groups or conglomerates affects their credit standing, as measured by their de- fault probabilities, recovery rates and credit spreads. Each combina- tion offers protection against default to its affiliates, and issues debt to optimize the...

The goal of this paper is to provide alternative approaches to generate indexes in order to assess banking distress. Specifically, we focus on two groups of indexes that are based on the signalling approach and on the zero in ated Poisson models. The results show that the indexes based on these...

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An iconic model with high leverage and overvalued collateral assets is used to illustrate the amplification mechanism driving asset prices to 'overshoot' equilibrium when an asset bubble bursts--threatening widespread insolvency and what Richard Koo calls a 'balance sheet recession'. Besides...