Mergers are the mechanisms that redraw the boundaries of the firm. In this paper, we relate incomplete contracts, upon which much of our understanding of firm boundaries is based, to empirical regularities in the market for mergers and acquisitions. We begin by empirically challenging...

To test recent theories that suggest valuation errors affect merger activity, we develop a decomposition that breaks M/B into three components: the firm-specific pricing deviation from short-run industry pricing; sector-wide, short-run deviations from firms' long-run pricing; and long-run...

Does valuation affect mergers? The data suggests that periods of stock merger activity are correlated with high market valuations. The naive explanation that overvalued bidders wish to use stock is incomplete because targets should not be eager to accept stock. However, we show that potential...

Price improvement refers to the practice whereby dealers offer executions that improve on quoted prices. Why are these improvements given? Standard thinking is that competition causes dealers to give better prices to customers with less information. This paper contrasts this with a novel theory...

To test recent theories that suggest valuation errors affect merger activity, we develop a decomposition that breaks M/B into three components: the firm-specific pricing deviation from short-run industry pricing; sector-wide, short-run deviations from firms' long-run pricing; and long-run...

This paper extends the theory of non-cash auctions by considering the revenue and efficiency of using different securities. Research on bankruptcy and privatization suggest using non-cash auctions to increase cash-constrained bidder participation. We examine this proposal and demonstrate that...

Since the after-fee returns of funds-of-funds are, on average, lower than hedge fund returns, it is easy to conclude that funds-of-funds do not add value compared to hedge funds. However, funds-of-funds should not be evaluated relative to hedge fund returns in publicly reported databases....

This paper develops a novel trade-off view of corporate governance. Using a simple model that integrates agency costs and bargaining benefits of management-friendly provisions, we identify the economic determinants of the resulting trade-offs for shareholder value. Consistent with the theory,...

This paper demonstrates how the principal-agent problem between venture capitalists and their investors (limited partners) causes limited partner returns to depend on diversifiable risk. Our theory shows why the need for investors to motivate VCs alters the negotiations between VCs and...

In many auctions, bidders do not have enough cash to pay their bid. If bidders have asymmetric cash positions and independent private values then auctions will be inefficient. However, what happens if bidders have access to financial markets? We characterize efficient auctions and show that in...