Market-Based Corrective Actions

Posted: 1 Feb 2010

See all articles by Philip Bond

Philip Bond

University of Washington - Michael G. Foster School of Business

Itay Goldstein

University of Pennsylvania - The Wharton School - Finance Department

Edward Simpson Prescott

affiliation not provided to SSRN

Date Written: September 2009

Abstract

Many economic agents take corrective actions based on information inferred from market prices of firms’ securities. Examples include directors and activists intervening in the management of firms and bank supervisors taking actions to improve the health of financial institutions. We provide an equilibrium analysis of such situations in light of a key problem: if agents use market prices when deciding on corrective actions, prices adjust to reflect this use and potentially become less revealing. We show that market information and agents’ information are complementary, and discuss measures that can increase agents’ ability to learn from market prices.

Keywords: D53, D80, G14, G21, G28, G34

Suggested Citation

Bond, Philip and Goldstein, Itay and Prescott, Edward Simpson, Market-Based Corrective Actions (September 2009). The Review of Financial Studies, Vol. 23, Issue 2, pp. 781-820, 2009. Available at SSRN: https://ssrn.com/abstract=1544159 or http://dx.doi.org/hhp059

Philip Bond (Contact Author)

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

Itay Goldstein

University of Pennsylvania - The Wharton School - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
215-746-0499 (Phone)

Edward Simpson Prescott

affiliation not provided to SSRN

No Address Available

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