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.
We study shareholder voting in a model in which trading affects the composition of the shareholder base. In this model, trading and voting are complementary, which gives rise to self-fulfilling expectations about proposal acceptance. We show...Read more
Index funds and indexed ETFs managed by the “Big Three” – BlackRock, Vanguard and State Street – have grown to be the largest investors in the capital markets and have become the presumptive “deciders” of corporate law controversies. With this...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