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David Dicks, Paolo Fulghieri Ambiguity, Disagreement, and Corporate Control (01 Jan 2012) Available at ECGI: http://ecgi.global/working-paper/ambiguity-disagreement-and-corporate-control
We show that ambiguity aversion generates endogenous disagreement between a firm?s insider and outside shareholders. Outsiders are well-diversified, but the insider holds only equity of the firm, leading to endogenous difference of opinion.
We show that the strength of the corporate governance system depends on both firm characteristics and the composition of the outsiders' overall portfolio. A strong governance system is optimal when the value of the firm?s assets in place, relative to the growth opportunity, is sufficiently small or is sufficiently large, suggesting a corporate governance life cycle. In addition, more diversified outsiders (such as generalist mutual funds) prefer stronger governance, while outsiders with a portfolio heavily invested in the same asset class as the firm (such as venture capitalists or private equity investors) are more willing to tolerate a weak governance system, where the portfolio companies' insiders have more leeway in determining corporate policies. Finally, we find that ambiguity aversion introduces a direct link between the strength of the corporate governance system and firm transparency, whereby firms with weaker governance should also optimally be more opaque.
This paper documents important shifts in occupational composition following merger and acquisition (M&A) activity as well as increases in median wages and wage inequality. We propose M&As act as a catalyst for skill-biased and routine-...Read more
A central challenge in the regulation of controlled firms is curbing controller tunneling. As independent directors and fiduciary duties are widely seen as not up to the task, a number of jurisdictions have given minority shareholders veto rights...Read more
The paper surveys the corporate opportunities doctrine in four jurisdictions: the US, the UK, Germany, and France. Our analysis enables us to trace the development of the doctrine, exposing the way in which certain models of dealing with a...Read more
We study the role of facial appearance in corporate director (re-)elections by means of director photographs published in annual reports. We find that shareholders use inferences from facial appearance in corporate elections, as a better (higher...Read more