Abstract. I examine how an internal auditor, called the firm, designs a control system for a strategic employee who conditions his thefts on the amount and types of controls. Society sets minimum testing amounts and fines for detected theft, whereas the firm determines the employee's wages and the amount of monitoring above the minimum. The results fall into three separate cases. When society's minimum testing standards and fines are sufficiently high, the employee never steals in any period. In this case, the firm performs the minimum amount of testing and pays the lowest feasible wage. In the remaining two cases, the testing standard and fines are too low to prevent theft by themselves. In these two cases the firm's control system determines whether there will be theft in the first period. I show that if the firm chooses to prevent all first‐period theft, then it uses only one type of control. She offers a wage premium and monitors the minimum amount. The wage premium substitutes for a tine large enough to prevent all theft. If the firm designs controls that do not prevent all theft, then the firm also uses only one control. In contrast to the no‐theft case, the firm pays the lowest feasible wage and monitors above the minimum. This choice reflects the increasing returns to scale of monitoring in preventing theft.

A personal narrative is presented that explores the author?s experience as editor of the ?Academy of Management Journal,? during the years 1967?1969.

I hypothesize that risk taking is greater in stock thrifts than in mutual thrifts because the residual and fixed claims are separable. I find that stock thrifts exhibit greater profit variability during the 1982–1988 period and that conversions from mutual to stock ownership are associated with increased investment in risky assets and increased profit variability. These findings illustrate the relation between the structure of residual claims, incentives, and firm performance as well as the unintended consequences resulting from changes in thrift regulations.

ABSTRACT This study provides evidence that transactions costs discourage debt reductions by financially distressed firms when they restructure their debt out of court. As a result, these firms remain highly leveraged and one‐in‐three subsequently experience financial distress. Transactions costs are significantly smaller, hence leverage falls by more and there is less recurrence of financial distress, when firms recontract in Chapter 11. Chapter 11 therefore gives financially distressed firms more flexibility to choose optimal capital structures.

This article examines the role of corporate headquarters in allocating scarce resources to competing projects in an internal capital market. Unlike a bank, headquarters has control rights that enable it to engage in “winner-picking”—the practice of actively shifting funds from one project to another. By doing a good job in the winner-picking dimension, headquarters can create value even when it cannot help at all to relax overall firm-wide credit constraints. The model implies that internal capital markets may sometimes function more efficiently when headquarters oversees a small and focused set of projects.

This study provides evidence that transaction costs discourage debt reductions by financially distressed firms when they restructure their debt out of court. As a result, these firms remain highly leveraged and one-in-three subsequently experience financial distress. Transactions costs are significantly smaller, hence leverage falls by more and there is less recurrence of financial distress when firms recontract in Chapter 11. Chapter 11 therefore gives financially distressed firms more flexibility to choose optimal capital structures.

[This paper examines the voluntary disclosure of nonproprietary information using the model of uncertain information endowment developed by Dye (1985) and Farrell (1986), and extended by Jung and Kwon (1988). The paper focuses on a broad family of functions relating the probability of information acquisition to ex post information quality. The paper shows that for each function there is some region that displays a negative relation between ex ante information quality and the frequency of disclosure. In addition, a sub-family of functions is identified for which ex ante information quality and the frequency of disclosure are negatively related everywhere. These results indicate that the economic intuition that higher informational asymmetry is accompanied by more voluntary disclosure is not generally true.]