This paper provides a theory of informal communication (cheap talk) between firms and the capital market. The theory emphasizes the central role that agency conflicts play in firms' disclosure policies. Since managers' information is a consequence of their actions, incentive compensation and...

We study the reorganization of a financially distressed firm when public debt-holders are uninformed about future profitability of its projects. With large expected NPV of the continuation project, exchange offers restructure the public debt. Low NPV results in liquidation. For intermediate...

The Gramm-Leach-Bliley (GLB) Act of 1999 repealed many provisions of the Glass-Steagall Act that curtailed competition between banks and commercial firms. Significantly, however, the GLB Act did not repeal the constraint on banks from owning equity in commercial firms (quot;universal...

This paper studies privatization under moral hazard and adverse selection. We show that under the presence of moral hazard, the optimal financial package of privatization consists of selling 100 per cent equity together with a subsidy on the observed cash flow. Price of the equity reflects the...

We provide a theory of informal communication-cheap talk-between firms and capital markets that incorporates the role of agency conflicts between managers and shareholders. The analysis suggests that a policy of discretionary disclosure that encourages managers to attract the market's attention...

This paper explores the incentive effects of a renewal clause in a lease. The basis of selection is rank-order performance. The authors' findings, in the context of a principal-agent model, are as follows. In order to extract greater effort from tenants (i.e., agents), the landlord (the...

This paper studies the possibility of endogenous fluctuations caused by activities of financial intermediaries. Risk-averse agents borrow from banks and invest in a risky two-state capital technology. The probability of success with the technology is assumed to be decreasing in the amount of...