New: Organizing for Synergies
Date Posted: Oct 22, 2011
Large companies are usually organized into business units, yet some activities are almost always centralized in a company-wide functional unit. We first show that organizations endogenously create an incentive conflict between functional managers (who desire excessive standardization) and business-unit managers (who desire excessive local adaptation). We then study how the allocation of authority and tasks to functional and business-unit managers interacts with this endogenous incentive conflict
The Value Maximizing Board
Date Posted: Apr 22, 2008
This paper compares board and director characteristics of reverse leveraged buyout (LBO) firms controlled by LBO specialists to those of an industry- and size-matched comparison sample. We consider the boards of the reverse LBOs to be value-maximizing because of the strong incentives the LBO specialists have to structure those boards in a way that maximizes shareholder value. Relative to the comparison firms, we find that the boards of the reverse LBOs are smaller, control larger equity stakes
The Value-Maximizing Board
Date Posted: Apr 22, 2008
This paper compares board and director characteristics of reverse leveraged buyout (LBO) firms controlled by LBO specialists to those of an industry- and size-matched comparison sample. We consider the boards of the reverse LBOs to be value-maximizing because of the strong incentives the LBO specialists have to structure those boards in a way that maximizes shareholder value. Relative to the comparison firms, we find that the boards of the reverse LBOs are smaller, control larger equity stakes,
New: The Informativeness of Prices: Search With Learning and Cost Uncertainty
Date Posted: Aug 07, 2007
No abstract is available for this paper.
New: Organizing for Synergies
Date Posted: May 08, 2007
Multi-product firms create value by integrating functional activities such as manufacturing across business units. This integration often requires making functional managers responsible for implementing standardization, thereby limiting business-unit managers' authority. Realizing synergies then involves a tradeoff between motivation and coordination. Motivating managers requires narrowly-focused incentives around their area of responsibility. Functional managers become biased toward excessive s
New: A Theory of Workouts and the Effects of Reorganization Law
Date Posted: Jan 03, 2007
We present a model of a financially distressed firm with outstanding bank debt and public debt. Coordination problems among public debtholders introduce investment inefficiencies in the workout process. In most cases, these inefficiencies are not mitigated by the ability of firms to buy back their public debt with cash and other securities--the only feasible way that firms can restructure their public debt. We show that Chapter 11 reorganization law increases investment and we characterize the t
Learning about Internal Capital Markets from Corporate Spin-offs
Date Posted: Sep 01, 2003
We examine the investment behavior of firms before and after being spun off from their parent companies. Their investment after the spin-off is significantly more sensitive to measures of investment opportunities (e.g., industry Tobin's Q or industry investment) than it is before the spin-off. Spin-offs tend to cut investment in low Q industries and increase investment in high Q industries. These changes are observed primarily in spin-offs of firms in industries unrelated to the parents' industr
Intellectual Property, Antitrust and Strategic Behavior
Date Posted: Jun 21, 2002
Economic growth depends in large part on technological change. Laws governing intellectual property rights protect inventors from competition in order to create incentives for them to innovate. Antitrust laws constrain how a monopolist can act in order to maintain its monopoly in an attempt to foster competition. There is a fundamental tension between these two different types of laws. Attempts to adapt static antitrust analysis to a setting of dynamic R&D competition through the use of 'innovat
Anatomy of Financial Distress: An Examination of Junk-Bond Issuers
Date Posted: Jan 03, 2002
This paper examines the events following the onset of financial distress for 102 public junk bond issuers. We find that out-of-court debt relief mainly comes from junk bond holders; banks almost never forgive principal, though they do defer payments and waive debt covenants. Asset sales are an important means of avoiding Chapter 11 reorganization; however, they may be limited by industry factors. If a company simply restructures its bank debt, but either does not restructure its public debt o
Learning About Internal Capital Markets From Corporate Spinoffs
Date Posted: Nov 05, 2001
This paper examines the investment behavior of firms before and after they are spun off from their parent companies. We show that investment after the spinoff is significantly more sensitive to measures of investment opportunities (e.g. industry Tobin's Q or industry investment) than it is before the spinoff. Spinoffs tend to cut their investment in low Q industries and increase their investment in high Q industries. These changes are observed only in spinoffs of firms in industries unrelated t