Empirical studies show that mutual funds are less likely to hold poorly governed foreign stocks. This theoretical model shows that foreign mutual fund managers will optimally lower their weight of badly governed stocks because they have higher costs of actively managing these holdings than their...

Suppose that infinitesimal firms have identical variable costs, but there is heterogeneity in their fixed costs. Regardless of the ordering of entry and exit, fixed costs will be minimized for a given industry size.

Several papers have argued that firms can hide profits from unions with hard debt commitments. Alternatively, here we argue that unions can manipulate the non-shirking constraint and win higher efficiency wages. By creating a culture of mistrust and an opposition to supervision ex ante, unions...

This paper considers a community where contracting institutions are weak. If social sanctions against opportunism rise in times of stress, then some good projects may be born out of misfortune.

The Troubled Asset Relief Program (TARP), or the $700 billion bailout, has been the subject of much academic interest. Here the rigorous studies on the programs of this massive intervention into the financial sector are reviewed. While considerable work has been done on the bank bailouts in the...

Purpose – The purpose of this paper is to solve the optimal managerial compensation problem when shareholders are either naïvely optimistic or rational. Design/methodology/approach –The paper uses applied game theory to derive the optimal CEO compensation package with over optimistic...

This paper studies the factors that were associated with a bank's early exit from the Troubled Asset Relief Program (TARP) in 2009. Executive pay restrictions were often a rationale cited for early TARP exit, and high levels of CEO pay in 2008 were associated with banks being significantly more...

This paper finds that banks that offered lower opening bids were rewarded with significantly lower warrant repurchase prices in transactions that raised $2.856 billion in 2009. These results were scaled by third-party consultants’ and the Congressional Oversight Panel's estimates of the...

This paper considers a community where contracting institutions are weak. If social sanctions against opportunism rise in times of stress, then some good projects may be born out of misfortune.

This article uses the option pricing arguments of Merton (1974) to demonstrate that even solvent banks will be reluctant to sell volatile, toxic assets at market prices. Banks' shareholders have insolvency puts that give them limited liability in the event of default. The insolvency puts are...