We provide a direct estimate of the magnitude of agency costs in U.S. publicly-held firms. Using a sample of 1,307 firms in 1992-1997, we compute an explicit performance benchmark that compares a firm’s actual Tobin’s Q to the Q∗ of a hypothetical fully-efficient firm having the same...

We examine to what extent institutional frictions such as short-sale constraints deter entry into informational arbitrage ex ante and reduce informational efficiency ex post. We focus on small arbitrageurs who target hard-to-short companies with correspondingly high potential for overvaluation....

We analyze dynamic trading by an activist investor who can expend costly effort to affect firm value. We obtain the equilibrium in closed form for a general activism technology, including both binary and continuous outcomes. Variation in parameters can produce either positive or negative...

We examine to what extent institutional frictions such as short-sale constraints deter entry into informational arbitrage ex ante and reduce informational efficiency ex post. We focus on small arbitrageurs who target hard-to-short companies with correspondingly high potential for overvaluation....

We document the existence of a strategy designed to circumvent limits to arbitrage. Faced with short-sale constraints and noise trader risk, small arbitrageurs publicly reveal their information to induce the target's shareholders (the longs) to sell, thereby accelerating price discovery. Using...

Limits to arbitrage play a central role in behavioral finance. They are thought to interfere with arbitrage processes so that security prices can deviate from true values for extended periods of time. We describe a recent financial innovation that allows limits to arbitrage to be sidestepped,...