Sky Blog
As institutional investors grow in size and influence, questions arise as to whether they are effective stewards for equity investors. That the three mutual fund families with the most total net assets each holds equity positions in around 5,000 U.S. …
Investor demand for information about firms’ environmental, social, and governance (ESG) commitments has prompted substantial corporate disclosure of their ESG activities. However, these disclosures often raise questions of “social washing,” where firms make unsubstantiated claims or misrepresent their company as …
The financial media provide information to investors by monitoring firms for fraud, excessive CEO pay, and other questionable behavior, as well as mundane activities such as periodic earnings announcements. However, it is unclear why certain firms get extensive media …
Several decades of research have found that capital structure and financing decisions are influenced not only by market frictions such as taxes and bankruptcy costs but also by conflicts between managers and shareholders. In a new paper, we test whether …
A number of recent news stories have recounted the quick and dramatic changes that activist hedge funds trigger in the companies they target. In the Atlantic magazine, for example, a 2016 article describes DuPont’s decision to cut 10 percent of …
Are insolvent firms different from solvent firms with respect to insider trading law and policy? Formally, the law does not change. But economic realities and non-securities law duties do. As a result, the insider trading landscape changes considerably. The law …
Since the financial crisis, much of the business media have focused on the level of CEO compensation and how much it increases from the prior year, often calling out the CEOs with the highest pay. These articles in the New …
Private firms can gain access to capital markets in several ways. The most well-known approach is through an initial public offering (IPO) of equity, and high-profile firms typically attract a large amount of attention from the popular press when they …
Traditional explanations for why companies choose certain financial policies focus on firm-specific factors. For instance, all else being equal, firms with higher tax rates are likely to favor debt financing over equity financing, given the tax advantages of debt. However, …
On December 22, 2017, President Trump signed Public Law No. 115-97, formerly known as the “Tax Cuts and Jobs Act” (the “Act”), into law. The Act makes a number of major changes to the U.S. federal income taxation of both …
In recent years, shareholder plaintiffs have brought a series of claims before the Delaware Court of Chancery alleging that directors of Delaware companies have abused their discretion in granting themselves excessive equity compensation for their board service. These cases raised …
In a new paper, “Worthless Companies,” I explain how companies with worthless assets can have substantial equity value on efficient markets and debt that trades near par, so long as an irrational bidder may acquire the company.
Consider a firm …
Law and economics scholars have long argued that efficiency is best served when a firm’s capital structure is arranged as a single, hierarchical value waterfall. In such a regime, claimants with seniority are made whole before the next-junior stakeholders receive …
In the last few years, a source of financing for start-ups, known as crowdfunding, has become widely available. It involves raising capital from a large number of individuals, each of whom typically contributes a small sum. The internet has lowered …
Developments in private and public markets are changing the role equity plays in the United States, i.e., what “stock” means as a matter not only of investment and corporate governance, but also of political economy. For several generations, a broad …
The Silicon Valley ecosystem has changed profoundly since the dizzying heights of the dot-com era. Consider two of that era’s iconic companies: Yahoo! and eBay. At the time of their IPOs, both of these companies were mere infants by today’s …
There are two established explanations for bank runs: coordination problems among depositors and information asymmetries between bank managers and depositors. In a new paper, “Information Gaps and Shadow Banking,” forthcoming in the Virginia Law Review and available here, I …
As the financial system’s capital was being depleted in the 2007-2009 financial crisis, some banks curtailed their dividends but others, especially securities firms, continued to pay dividends well into the depth of the crisis. Indeed, some firms — including those …
We recently published a paper on CEO compensation and value sharing between executives and shareholders. The paper is available here.
CEO compensation is a controversial subject that evokes considerable debate on whether public company CEOs are paid correctly relative …
They say that one should not look a gift horse in the mouth. We decided to go against this proverb and look carefully in the mouth of one such gift horse. After all, we still remember from high school reading …