This paper investigates, both theoretically and empirically, how earnings management and ownership retention interact, and how these two jointly affect the equilibrium market valuation of IPO firms in the presence of information asymmetry. Analytically, this paper extends the univariate signaling framework of Leland and Pyle (1977) and derives an efficient signaling equilibrium in which both reported earnings and ownership retention are endogenously chosen to convey the IPO issuer's private information. It is shown that even though either ownership retention or reported earnings communicates the issuer's type to the market unambiguously, the issuer will strategically employ both signals to achieve separation from potential lower quality imitators at minimal cost. Comparative statics analysis shows that the trade-off between the two signals depends critically on the uncertainty over future earnings. The theoretical analysis generates several empirical implications regarding market efficiency, IPO pricing, and the strategic choice of earnings management. Through systematic econometric analysis, I confirm the major predictions of the model.

This paper investigates how competition for scarce corporate resources impacts innovation incentives within multidivisional firms and, consequently, shapes firms’ preferences for fostering or restricting intra-firm competition. In our model, divisions become privately informed about the potential value of new investment opportunities generated through their innovation initiatives. We demonstrate that intra-firm competition unambiguously reduces divisions’ ex ante innovation incentives. However, it benefits ex post resource allocation by enabling the firm to (i) select the most promising project and (ii) limit the rents divisions earn from their private information. Consequently, a firm’s preference to limit or encourage interdivisional competition hinges on balancing ex post allocative efficiency, which favors increased intra-firm competition, against ex ante innovation incentives, which favor reduced competition. Our analysis identifies plausible conditions under which each organizational design—competitive or exclusive innovation—emerges as the optimal choice.

We study how corporate taxation interacts with intrafirm incentive conflicts between shareholders and managers and how this interaction impacts the firm's economic decisions and outcomes. In our model, investment under asymmetric information facilitates entrenchment and rent extraction by the privately informed manager. We show that when the future investment payoff is exogenous, a corporate tax cut increases managerial rents, reduces pre‐tax investment profitability, increases the firm's optimal investment hurdle rate, and reduces investment. When the manager can exert upfront project development effort to increase the expected investment payoff, a tax rate reduction not only encourages more effort but also leads the firm to increase the investment hurdle rate to curtail rents. In equilibrium, a lower tax rate always benefits the manager, but the sensitivity of the project's return to the manager's effort determines whether the firm will increase or decrease investment in response to a tax cut, and whether the firm's resulting pre‐tax profit will increase or decrease. Overall, our study shows that intrafirm incentive conflicts can be an important factor in the interplay between tax incidence and economic efficiency, two central themes in corporate tax policy debates.