We develop a theory of how the intersection of business goals and the pursuit of ?higher purpose?? something that produces a non-pecuniary social benefit valued by the principal and the agent ? affects economic outcomes. Two types of principals ? those pursuing only wealth maximization and those pursuing both wealth and a higher purpose ? are considered.
These are typically viewed as competing approaches to running organizations. However, the theory we develop, which shows that the pursuit of higher-purpose projects reduces labor costs and increases capital investments, highlights a potential complementarity between the principals pursuing a higher purpose and those exclusively pursuing wealth. The complementarity arises because the pursuit of higher-purpose projects by others can relax budget constraints for wealth-maximizing principals, and the presence of purely-wealth maximizing principals may be essential for the higher-purpose-pursuing principals to obtain external financing. The absence of either type of principal may lead to a market breakdown involving no projects being undertaken.
This article offers a theory of mutual fund voting to answer when mutual funds should vote on behalf of their investors and when they should not. It argues that voting authority for mutual funds ought to depend upon: (1) whether the fund...Read more
Firms can issue stocks classified in many ways. They can be classified in respect to voting rights, dividend rights, redemption rights, conversion rights, and many others. In this study, we ask if it is desirable to give greater freedom to firms...Read more
Preemptive rights are thought to protect minority shareholders from cheap-stock tunneling by a controlling shareholder. We show that preemptive rights, while making cheap-stock tunneling more difficult, cannot prevent it when asymmetric...Read more
Despite the increasing importance of shareholder voting, regulators have paid little attention to the rights of retail investors who own approximately 30% of publicly traded companies but who vote less than 30% of their shares. A substantial...Read more