We determine firms' equity ownership structures and provide a theory of hostile takeovers by distinguishing the roles of two types of blockholders: rich investors and institutional investors. We also distinguish the roles of two types of stock markets: the block market and the market with small...

How should one regulate a firm when its investment may cause a negative externality? In this paper we present a model on regulating a firm run by a manager and owned by a shareholder. The regulator can impose a penalty on the manager, the shareholder, or both. Our characterization of optimal...

We propose a theory of mergers that combines managerial merger motives with an industry-level regime shift that may lead to value-increasing merger opportunities. Anticipation of these merger opportunities can lead to defensive acquisitions, where managers acquire other firms to avoid losing...

Agency problems in firms are prevalent because of a scarcity of wealthy principals with corporate govern-ance ability, whom we call quot;restructuring specialistsquot;. We investigate how this scarce resource, quot;agency cost-free capital,quot; is allocated. We show that the restructuring...

We determine firms' equity ownership structures and provide a theory of hostile takeovers by distinguishing the roles of two types of blockholders: rich investors and institutional investors. We also distinguish the roles of two types of stock markets: the block market and the market with small...

Using a measure of operating leverage that directly reflects the importance of fixed operating costs in firms' cost structures, we investigate why operating leverage is related to financial policies. High fixed cost firms have lower leverage and larger cash holdings than low fixed cost firms not...

In this paper, we present a model of defensive mergers and merger waves. We argue that mergers and merger waves can occur when managers prefer that their firms remain independent rather than be acquired. We assume that managers can reduce their chance of being acquired by acquiring another firm...

Many firms have stockholders who face severe restrictions on their ability to sell their shares and diversify the risk of their personal wealth. We study the costs of these liquidity restrictions on stockholders using a continuous-time portfolio choice framework. These restrictions have major...

Many firms emerging from a debt restructuring remain highly leveraged, continue to invest little, perform poorly, and often reenter financial distress. The existing literature interprets these findings as inefficiencies arising from coordination problems among many creditors or an inefficient...

This paper analyzes financial distress as a selection mechanism. We follow the process of financial distress from its onset to its resolution for a sample of 102 firms that enter financial distress between 1979 and 1983. Only a little more than one-third of firms survive as independent...