We consider the problem of motivating privately informed managers to engage in entrepreneurial activity to improve the quality of the firm's investment opportunities. The firm's investment and compensation policy must balance the manager's incentives to provide entrepreneurial effort and to...

The paper analyses the question who should be provided with incentives to acquire and reveal information about the quality of an investment proposal: the divisional manager, who derives private benefits of control from the project and therefore prefers to carry out the project, or the capital...

In this paper I claim that public-going owner-managers do not know the true value of their firms. The price that the stock-market sets for the firm's shares after the IPO is a better estimate for the true firm-value than the prior that management had before the offering. Because a higher...

Overinvestment in certain firms or sectors induced by corporate fraud, where informed insiders strategically manipulate outside investors' beliefs by exaggerating financial performance and economic prospects, has been endemic historically and has recently attracted much attention. We present a...

The role of information's processing in bank intermediation is a crucial input. The bank has access to different types of information in order to manage risk through capital allocation for Value at Risk coverage. Hard information, contained in balance sheet data and produced with credit scoring,...

This paper proposes an explanation for two empirical puzzles surrounding initial public offerings (IPOs). Firstly, it is well documented that IPO underpricing increases during quot;hot issuequot; periods. Secondly, venture capital (VC) backed IPOs are less underpriced than non venture capital...

Through dozens of studies, economists have accumulated considerable evidence and knowledge on the effects of the takeover market. Most of the earlier work is well summarized elsewhere (Jensen and Ruback (1983); Jensen (1984); Jarrell, Brickley and Netter (1988)). Here, I focus on current aspects...

This paper shows that a capital budgeting process in which the division manager is required to engage in personally costly influence activities prior to a project approval has beneficial incentive effects: It provides the manager with incentives to acquire costly information about project...

The interests and incentives of managers and shareholders conflict over such issues as the optimal size of the firm and the payment of cash to shareholders. These conflicts are especially severe in firms with large free cash flows--more cash than profitable investment opportunities. The theory...

Cost allocations have befuddled managers around the world for over a century. The need for objective, actionable cost accounting data is frustrated not just by the difficult theoretical issues in distinguishing among various classes of cost, but also by informational asymmetries and agency...