In his groundbreaking work “Uncertainty, Evolution, and Economic Theory,” Armen Alchian (1950) suggests that survival is the real test of a firm's success. In this paper, I apply the survival test to the use of dual class share structures in the United States. Beginning with its original implementation by the International Silver Company in 1898 to the prevalence of dual class initial public offerings in 2013, I review the evolution and continued sustainability of the dual class structure in the United States. I contrast the structure with the failed use of tracking stocks and illustrate the structure's continued resilience alongside “competitive” anti-takeover devices such as poison pills, staggered boards, and supermajority voting requirements. Despite the external challenges from legislative bodies, shareholder rights groups, and institutional investors, the dual class structure has survived as an alternative means to raise capital for founders and/or controlling stockholders.

This paper reviews recent research on franchising and capital structure. Several key variables that affect capital costs and are common to franchised businesses are identified. The question whether or not franchising exists because franchisees provide capital that has no close substitutes for pioneering entrepreneurs is explored and criticized because alternatives to franchisees' funds are readily available and not used by franchisers. The role of franchisee financing is also examined as a key feature of capital structure in these types of industries.

Whether equity-based compensation and equity ownership align the interests of managers with stockholders is an important question in finance. Early studies found an inverted U-shaped relation between managerial ownership and firm value, but later studies using firm fixed effects found no relation. Managerial ownership levels change very slowly over time which may mask an ownership effect on firm value when using a fixed effect model. This is due to a much smaller within firm variation than between firm variation. We demonstrate that using pay-performance semi-elasticity, rather than pay-performance sensitivity as a measure of managerial ownership incentives, results in meaningful variation within firm over time. The greater within firm variation increases the power to detect a relation between managerial ownership and firm value with fixed effect regressions. As in the early research on this issue, we find a significant inverted U-shaped relation between managerial ownership and Tobin's Q in fixed effects regressions and after controlling for endogeneity with both two-stage and three-stage least squares regressions. Our results are consistent with incentive alignment at low levels and risk aversion at high levels of managerial ownership.

This study examines make or buy decisions for 196 hospitals in the United States using transaction costs as the basis for analysis. We examine the potential effects of quality and economies of scale on these decisions. We find evidence to support the view that transaction costs, quality and economies of scale play an important role in the integration decision and that this role depends on whether the transaction is industry-specific or generic in nature. This study examines the contracting choices of many firms across multiple transactions with a significantly larger data set than previous work in the area.

This paper examines empirically the effects of domicile and SEC registration and reporting requirements on information asymmetry. We compare the adverse-selection component of the relative bid–ask spread (our measure of information asymmetry) for three samples of Nasdaq NMS companies that trade in different home markets and are subject to different standards of disclosure: registered U.S. companies, registered non-Canadian foreign companies, and unregistered non-Canadian foreign companies covered by the information-supplying exemption of the Securities and Exchange Act of 1934. We find that the adverse-selection component is not significantly larger for the two foreign samples, and it is not reliably different for the registered and unregistered foreign samples. Therefore, we are unable to document that less stringent SEC registration and reporting requirements for foreign companies are associated with greater information asymmetry among investors for non-U.S. securities traded on Nasdaq.

We examine how asset structure is related to leverage in different institutional environments, using tens of thousands of firm-level observations from small, privately held, emerging market firms that are likely to face financing constraints. Our empirical analysis indicates that the linkage between asset tangibility (fixed assets as a portion of total assets) and leverage (measured as long-term debt over total assets) varies, such that in countries with fewer restrictions on collateral (land transferability), the relationship between these variables is much tighter. This also applies to the linkage between tangibility and debt maturity structure (measured as long-term debt over total debt). We find no evidence that industry concentration in different countries or changing composition of firms over time is driving our findings. The results are robust to using firm-level fixed effects specifications, to clustering error terms at the country level, and to using an alternative proxy for collateral law regime.

In this paper, I examine the nature of hostages in long-term contracts. The definition of a hostage is improved relative to the rents attached to a contract. In addition, I show that hostages need to reflect marginal deterrence (fitting the crime) and operate similarly to the same principle in the criminal law. Some empirical observations are presented from franchise systems and support the marginal-deterrence hypothesis.

We investigate the motives and circumstances surrounding outside directors' decisions to publicly announce their board resignations. Directors who leave “quietly” are in their mid-sixties and professional directors, i.e., retirees, who are retiring entirely from professional life. Directors who announce their resignation are in their mid-fifties and active professionals. Half the time they say they are leaving because they are “busy.” These directors leave from firms with some weakness in their performance, but with no overt manifestations of cronyism such as excessive compensation of either the CEO or directors. The other half of the time directors leave while publicly criticizing the firm. These directors are finance professionals who were members of the audit and compensation committees. They resign from firms with weak boards and financial performance with evidence that managers have manipulated earnings upwards. Public criticism appears to pressure these boards to make management changes associated with improved stock price performance. We conclude that while such public resignations are motivated by the reputational concerns of directors, they can act as a disciplining device for poor board performance.

This study examines abnormal stock price changes prior to executive stock option grants. Executives have the incentive and opportunity to manage the timing of their communications of inside information to the market during the period just prior to the date of their stock-option grant so as to reduce the exercise price of their options. Executives benefit from temporary stock price decreases before the grant date and by stock price increases after the grant date. Executive stock option grants create a unique opportunity for insiders to profit by manipulating the timing of information flowing to the market without engaging in insider trading. Using data on 783 stock-option grants to chief executive officers, we find a statistically significant abnormal decrease in stock prices during the 10-day period immediately preceding the grant date.

Some argue that managers effectively control corporate voting: hence the process is meaningless. Others contend that shareholder voting motivates managers to maximize firm value. We provide evidence on this debate by analyzing the results from a large sample of management-sponsored anti-takeover amendments. Our results do not support the extreme form of either hypothesis. The evidence suggests that shareholder voting is important and indicates the circumstances where voting is most likely to constrain managers. Our results also have implications for the use of voting in political and other non-corporate contexts.