We model fundamental differences across economic systems and propose optimal bankruptcy laws. We show that creditors-debtors relationships in a given economy are affected by the ability of creditors to obtain information about fundamentals and the managers' ability to strategically use their...

The literature has identified two different processes by which innovation of new products presents itself. The first, the Technology Push process, occurs when the innovation of a new product is spurred by a technology that the entrepreneur possesses. The second, the Market Pull process, occurs...

This study presents a theory of incorporation mode selection. It outlines when economic units should incorporate as stand-alone firms vs. an integrated firm (conglomerate). The theory suggests that an integrated firm better controls agency problems through manager competition for project...

We investigate the interaction between financial structure and managerial compensation in the context of a managerial entrenchment model in the spirit of Shleifer and Vishny (1989). We show that risky debt affects both the probability of managerial replacement and the manager's wage if he is...

We model fundamental differences across economic systems and propose optimal bankruptcy laws. We show that creditors-debtors relationships in a given economy are affected by the ability of creditors to obtain information about fundamentals and the managers' ability to strategically use their...

In this article, we show plausible situations where the Net Present Value (NPV) criterion leads to inefficient capital budgeting outcomes and is dominated by other capital budgeting criteria, like the internal rate of return (IRR) and the profitability index (PI). Our theory is rooted in the...

We study the design of internal control and capital structure. We pose the question: when is control allocated only to shareholders and when is it allocated to other stakeholders like debtholders, or the management team? We show that shareholders (debtholders) get control when the firm's cash...

We investigate the interaction between financial structure and managerial compensation and show that risky debt affects both the probability of managerial replacement and the manager's wage if he is retained by the firm. Our model yields a rich set of predictions, including the following: (i)...