Financing from family and friends is the predominant type of informal finance. This paper proposes a theory that reconciles two seemingly paradoxical traits of this form of finance, namely, it is often provided at negative prices but nevertheless eschewed by borrowers. A central prediction is...

How should bidders finance tender offers when the objective of the takeover is to improve incentives? In such a setting, debt finance has benefits even when bidders have deep pockets: It amplifies incentive gains, imposes Pareto sharing on bidders and free-riding target shareholders, and makes...

The impact of separating cash flow and votes depends on the ownership structure. In widely held firms, one share - one vote is in general not optimal. While it ensures an efficient outcome in bidding contests, dual-class shares mitigate the free-rider problem, thereby promoting takeovers. In the...

We examine the effect which credit risk transfer (CRT) markets have on real sector productivity and the volume of financial intermediation in an economy. We find that, despite a reduction in per-firm monitoring, CRT increases productivity in the up-market segment of the real sector but decreases...

We study a model in which firms compete preemptively for trading opportunities and risk management introduces latency in trading. As the time pressure faced by firms is endogenous to risk management choices, strategic complementarities can trigger a “race to the bottom” where prioritizing...

We study transactions in which sellers fears being underpaid because their outside option is better known to the buyer. We rationalize various observed contracts as solutions to such smart buyer problems. Key to these solutions is granting the seller upside participation. In contrast, the lemons...

The theoretical literature on security-voting structure can be organized around three questions: What impact do non-voting shares have on takeover outcomes? How does disproportional voting power affect the incentives of blockholders? What are the repercussions of mandating one share - one vote...

This paper demonstrates that non-voting shares can promote takeovers. When the bidder has private information, shareholders may refuse to tender because they suspect to sell at an ex post unfavourable price. The ensuing friction in the sale of cash flow rights can prevent an efficient change of...

We compare activism and takeovers from a blockholder's perspective who can invest effort into improving firm value. Profits from the two intervention modes move in opposite directions when the marginal return to effort changes such that activism, although less efficient, can be more profitable....

This paper examines how the interaction of bidder's private information and target shareholders' free-riding behavior affects the equilibrium outcomes and bid design in tender offers. While pooling equilibria always exist, separating ones emerge only in two scenarios. First, the bidder can...