We posit that the value of a manager's human capital depends on the firm's business strategy. The resulting interaction between business strategy and managerial incentives affects the organization of business activities, both the internal organization of the firm and the determination of firm...

I study the consequences of a random exposure to common risk for the purpose of relative performance evaluation (RPE) and find that it significantly affects the usefulness and the empirical measurement of RPE. According to my analysis, the magnitude of the exposure risk not only determines how...

This is an annotated appendix that accompanies the paper. In this note, we provide detailed commentary on a numerical example that illustrates the ideas that we discuss in the main paper. The numerical example is in Table18.10, Chapter 8, page 656, of the third edition of Corporate Finance,...

In this note, we extend a numerical example in the textbook by Berk & DeMarzo that matches methods for only when K_TS is equal to K_D. We show that there is a generalized formulation for the return to levered equity K_E that works for any value of K_TS, the appropriate discount rate for the tax...

In this short note, we present a nontechnical retrospection on the unbearable longevity of the classic WACC (Weighted Average Cost of Capital) for the Free Cash Flow (FCF) in perpetuity. Over the past two decades, researchers in finance have increased greatly our understanding of the properties...

The efficient and effective organization and coordination of corporate governance activities is still one of the major challenges of modern corporate management. For many years, it was precisely the so-called Three Lines of Defense model that was used to structure governance functions. However,...

Prior research establishes that boards of directors can encourage risk-averse managers to take risky actions by providing stock options and severance pay. We demonstrate that the ability of these incentives to encourage risk-taking hinges on the level of uncertainty facing the manager, and that...

Firms routinely allocate the costs of common corporate resources down to divisions. This paper explores cost allocation rules that induce efficient capital investments by these divisions. It examines efficient allocation rules that satisfy properties of actual rules used in practice, namely...

The topic of "management" and nonprofit organizations (NPOs) continues to fascinate scholars. This paper draws on varying theoretical perspectives to explore their respective contributions to our knowledge of NPOs. The two longstanding and contrasting disciplines of economics and sociology have...