This article analyzes the manifold situations in which the efficient-market hypothesis (EMH) has influenced—or has failed to influence—federal securities regulation and state corporate law, and the prospective roles for the EMH in these contexts. In federal securities regulation, the EMH has...

A classic theory of corporate governance holds that when cash flow is high and investment opportunities scarce, takeover threats reduce managerial self-dealing and encourage dividend payment to owners. I conduct laboratory experiments studying the effect of cash flow on selfdealing and the...

This article examines the interaction between the restructuring process of a financially distressed firm and the behavior of its manager. We analyze a situation in which a bank decides to offer a renegotiation to a distressed firm, yet the manager is reluctant to implement a restructuring even...

In this paper, we examine two acquisitions of financially distressed retailers: Federated's takeover of Macy's, and Zell Chilmark's takeover of Carter Hawley Hale. In both cases the raider purchased some of the target's outstanding debt to launch its takeover attempt. These debt purchases appear...

We develop a model in which debt forgiveness can be Pareto- efficient because it improves incentives to invest. A debt restructuring plan, however, must be unanimously approved by a multiplicity of creditors who have private information about the liquidation value of the debtor. Using mechanism...

A simple contracting environment with a creditor who has wealth and a entrepreneur who has a two-period investment project is studied. After observing the partial completion of the project at the end of first period, the creditor may decide whether to refinance it or liquidate it. Contracting is...

We examine the relationship between corporate governance and default risk for a sample of firms cited in the Securities and Exchange Commission's (SEC's) Accounting and Auditing Enforcement Releases (AAERs). Using hazard analysis of actual default incidence and OLS regressions of a continuous...

Larger firms (by sales or employment) have higher leverage. This pattern is explained using a model in which firms produce multiple varieties and borrow with the option to default against their future cash ow. A variety can die with a constant probability, implying that bigger firms (those with...