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Abstract:
This paper identifies a new corporate governance mechanism: sharing control. We show that bargaining problems among multiple controlling shareholders may prevent inefficient investment decisions that harm minority shareholders. The same bargaining problems may block efficient investment decisions, though. By solving this trade-off, we show that the likelihood that shared control is efficient increases with three firm characteristics: overinvestment problems, the cost of verifying cash flows, and financing requirements. The model provides testable implications for the role that large shareholders play in corporate governance, contrasting shared control and monitoring as alternative governance mechanisms.

Abstract:
Firms that maintain no formal record of actions and events would hardly be considered well managed. Yet, organizations that require the recording of actions and the filing of reports are often labeled 'bureaucratic' and inefficient. This Paper argues that the thin line between efficient management practices and inefficient bureaucracy is crossed to curb managerial agency costs in a multi-layer hierarchy. The model predicts that bureaucracy increases with the frequency of managerial turnover, and it establishes a link between bureaucracy, incentive schemes, and leverage in a cross-section of firms.

Bureaucracy, organizations, turnover

Abstract:
Firms that maintain no formal record of actions and events would hardly be considered well managed. Yet, organizations that require the recording of actions and the filing of reports are often labeled 'bureaucratic' and inefficient. This paper argues that the thin line between efficient management practices and inefficient bureaucracy is crossed to curb managerial agency costs in a multi-layer hierarchy. The model predicts that bureaucracy increases with the frequency of managerial turnover, and it establishes a link between bureaucracy, incentive schemes, and leverage in a cross-section of firms.

Abstract:
Firms that maintain no formal record of actions and events would hardly be considered well managed. Yet, organizations that require the recording of actions and the filing of reports are often labelled "bureaucratic" and inefficient. This paper argues that the thin line between efficient management practices and inefficient bureaucracy is crossed to curb managerial agency costs in a multi-layer hierarchy. The model predicts that bureaucracy increases with the frequency of managerial turnover, and it establishes a link between bureaucracy, incentive schemes, and leverage in a cross-section of firms.

Abstract:
This paper examines the potential for external conflicts in large, diversified business groups. On one hand, these groups are highly visible, facilitating the detection of opportunistic actions. Accordingly, reputation concerns should effectively constrain group behavior. On the other hand, these groups are highly complex, making it difficult for outsiders to unveil group strategies from among a myriad of transactions. This complexity should limit the power of reputation concerns to constrain actions. We use data on IPO initial returns to evaluate the trade-off between visibility and complexity. The evidence suggests that complexity dominates visibility, providing scope for opportunistic behavior against outside investors.

Abstract:
This paper examines the potential for external conflicts in large, diversified business groups. On one hand, these groups are highly visible, facilitating the detection of opportunistic actions. Accordingly, reputation concerns should effectively constrain group behavior. On the other hand, these groups are highly complex, making it difficult for outsiders to unveil group strategies from among a myriad of transactions. This complexity should limit the power of reputation concerns to constrain actions. We use data on IPO initial returns to evaluate the trade-off between visibility and complexity. The evidence suggests that complexity dominates visibility, providing scope for opportunistic behavior against outside investors.

Abstract:
In the last two decades, the number of foreign firms cross listing their shares in the US has significantly increased. In response, some stock exchanges have offered the option of adhering to stricter exchange governance requirements. Can these rules enhance firm value in countries with weak legal regimes? Using data from two exchanges in Korea, we show that, controlling for the choice of exchange, Tobin's Q values are higher at the exchange with stricter delisting requirements. Other analyses suggest that credible enforcement and transparency explain part of the value-enhancing role of the stricter exchange rules.

Bonding, Emerging markets, Cross-listing

Abstract:
In recent years, stock exchanges have engaged in strategic alliances and regulatory changes to attract firms and trading volume. To characterize the outcomes of such regulatory competition, legal scholars coined the phrases race to the top and race to the bottom. In a race to the top, the competing exchanges adopt similar value-enhancing standards, while, in a race to the bottom, they enact weaker rules. We demonstrate that, for a battle for market share to result in a race to the top, it cannot have a winner. We identify a race to the top in Korea and show that, as our model predicts, it ended up with no winner.

Race to the top, stock exchanges, emerging markets

Abstract:
Recent capital structure theories have emphasized the role of debt in minimizing the agency costs that arise from the separation between ownership and control. In this paper we argue that capital structure choices themselves are affected by the same agency problem. We show that, in general, the shareholders' and the manager's capital structure choices differ not only in their levels, but also in their sensitivities to the cost of financial distress and taxes. We argue that only the managerial perspective can explain why firms are generally reluctant to issue equity, why they issue it only following a stock price run-up, and why Corporate America recently deleveraged under the same tax system that supposedly generated the increase in leverage in the 1980s.

Abstract:
Despite strong evidence that suppliers of inputs are usually informed lenders, the cost of trade credit rarely varies with borrowing firm characteristics. We solve this puzzle by demonstrating that it is optimal for suppliers to keep riskier firms indifferent between trade credit and loans from uninformed banks. Because these bank loans are likely to vary across industries but not with firm characteristics, the same pattern applies to the cost of trade credit. The model predicts that the cost of trade credit is more likely to vary with firm characteristics in industries that are plagued by moral hazard problems or economic distress.

Trade Credit, Information, Credit Risk

Abstract:
How do shareholders perceive managers who lever up under a takeover threat? Increasing leverage conveys good news if it reflects management's ability to enhance value. It conveys bad news, though, if inefficient managers are more pressured to lever up than the efficient ones. This paper demonstrates that negative updating may prevail. Managers who lever up to end a takeover threat may thus commit to enhance value and yet increase their chances of being replaced by their shareholders. The model provides implications for the dispersion of intraindustry leverage and for the stock price reaction to debt-for-equity exchanges.

Abstract:
This paper explains why companies close to bankruptcy tend to lose their best workers and why the employees who remain lack proper motivation. This collapse of incentives within an organization arises because of a negative interaction between the system of incentives and the capital structure chosen by top management to avoid disciplinary takeovers. Furthermore, the same devices management creates ex ante to entrench itself also make it extremely difficult to renegotiate away the inefficiency ex post. This new approach identifies an additional source of financial distress and also provides a rationale for a mandatory bankruptcy law.