We argue that the root cause behind the recent corporate scandals associated with CEO pay is the technology bubble of the latter half of the 1990s. Far from rejecting the optimal incentive contracting theory of executive compensation, the recent...Read more
The big corporate governance debates nowadays concern the corporation’s time horizons, and the balance of power between shareholders and managers. In response to actual and anticipated pressure from shareholder activists – typically, activist...Read more
Stock-market-driven short-termism is crippling the American economy, according to legal, judicial, and media analyses. Firms forgo the R&D they need, cut capital spending, and buy back their own stock so feverishly that they starve themselves...Read more
This paper studies incentives in a dynamic contracting framework of a levered firm. In particular, the manager selects long-term and short-term efforts, while shareholders choose initially optimal leverage and ex-post optimal default policies....Read more
This paper shows that short-term stock price concerns induce CEOs to take value-reducing actions. Vesting equity, our measure of short-term concerns, is positively associated with the probability of a firm...Read more
We model blockholder governance as a sequential process, from less hostile private intervention, to confrontational public intervention, and finally exit. When the blockholder faces short-term incentives, the threat of public intervention and...Read more
An emerging consensus in certain legal, business, and scholarly communities maintains that corporate managers are pressured unduly into chasing short-term gains at the expense of superior long-term prospects. The forces inducing managerial myopia...Read more
This paper looks at shareholder activism from the perspective of the revision of the EU Shareholder Rights Directive, which was approved by the European Parliament on 14 March 2017. The main findings are as follows.
First, the effective...Read more
During 2007-2016, S&P 500 firms distributed to shareholders $7 trillion via buybacks and dividends, over 96% of their aggregate net income, prompting claims that "short-termism" is impairing firms' ability to invest and innovate. We show that...Read more
We show that following large permanent negative shocks, firms with more short-term institutional investors suffer smaller drops in sales, investment and employment and have better long-term performance than similar firms affected by the shocks....Read more
We present a model where firms compete for scarce managerial talent ("alpha") and managers are risk-averse. When managers cannot move across firms after being hired, employers learn about their talent, allocate them efficiently to projects and...Read more
We examine whether pre-bid target stock price runups lower bidder takeover gains and deter short-term toehold purchases in the runup period. A dollar increase in the runup raises the initial offer price by $0.80 (markup pricing). Bidder gains,...Read more