We propose a new continuous-time principal-agent model to study the optimal timing of stock-based incentives, when the effects of managerial actions materialize with a lag and are only progressively understood by shareholders. On the one hand, early contingent compensation hedges the manager...

We investigate the effect of the ability of \non-traditional" funds to short-sell the equity of their debtors. This enables the funds to vote on the restructuring proposals of distressed firms, while at the same time they separate their voting rights from their economic exposure. The effect on...

Banks operating under Value-at-Risk constraints give rise to a well-defined aggregate balance sheet capacity for the banking sector as a whole that depends on total bank capital. Equilibrium risk and market risk premiums can be solved in closed form as functions of aggregate bank capital. We...

We study flows between investment funds and their effects on asset prices in a simple two period version of Vayanos and Woolley (2010, VW). As in VW, flows cause assets to commove in ways unrelated to fundamentals, affect assets with high idiosyncratic risk the most, and raise the expected...

In a moral hazard setting with a performance additive in effort and a symmetrically distributed noise term, I show that compensation contracts which are convex in performance are suboptimal when the agent has mean-variance preferences. With step contracts, I show that sticks are more efficient...

We examine whether a bidder can use tender offer terms to signal post-takeover security benefits. Neither restricted bids nor cash-equity offers allow the bidder to reveal private information. Since atomistic shareholders extract all the gains in security benefits, signaling equilibria are...

We offer a rational expectations model of the dynamics of innovative industries. The fundamental value of innovations is uncertain and one must learn whether they are solid or fragile. Also, when the industry is new, it is difficult to monitor managers and make sure they exert the effort...

We propose a rational theory of momentum and reversal based on delegated portfolio management. Flows between investment funds are triggered by changes in fund managers' e±ciency, which investors either observe directly or infer from past performance. Momentum arises if fund °ows exhibit...

We show that country characteristics explain most of the cross-sectional variation in bank board independence. In contrast, country characteristics have little explanatory power for the fraction of outside bank directors with experience in the banking industry. Exploiting the time-series...

Bailing out banks requires overcoming debt overhang, in order to sustain their incentives for new lending, as well as dealing with adverse selection with respect to the quality of banks’ balance sheets. We examine bailouts that eliminate debt overhang, while attempting to minimize subsidies to...