Several studies of mergers and tender offers examine the changes in the value of ownership claims associated with corporate acquisitions and use the observed value changes to address the degree of competition in the market for corporate acquisitions. These studies conclude that the takeover market is competitive on the basis of the abnormal stock price changes of bidding firms, the time series behavior of the market value of target firms, and the proportion of gains that accrue to target and bidding firms. Unfortunately, none of these tests are sufficient to conclude that the takeover market is competitive. A competitive acquisition market implies that the potential gain to unsuccessful bidders at the successful offer price is nonpositive. This implication is tested using data on tender offers in which there are multiple bidders. The results appear to be consistent with competition in the market for corporate acquisitions.

The optimal timing of real investment is studied under the assumptions that investment is irreversible and that new information about returns is arriving over time. Investment should be undertaken in this case only when the costs of deferring the project exceed the expected value of inforrnation gained by waiting. Uncertainty, because it increases the value of waiting for new information, retards the current rate of investment. The nature of investor's optimal reactions to events whose implications are resolved over time is a possible explanation of the instability of aggregate investment over the business cycle.

Institutional and Behavioral Economics, Labor and Human Capital

No abstract provided.

ABSTRACT In this paper we examine the factors affecting the structure of executives' compensation packages. We focus particularly on the role of various types of delayed compensation as means of “bonding” executives to their firms. The basic problem is to design a compensation package that rewards actions that are in the long‐run interest of the stockholders. Firms must take into account their ability to discern unfortunate circumstances from mismanagement, the extent to which a compensation package forces the executive to face risks beyond his control, and the willingness of a given executive to bear this risk. We use our theory to interpret some executive compensation data from the early 1970s.

Optimal monetary policy rules are derived in a rational expectations cum contracting framework. Monetary policy is redundant if wage setters exploit the incomplete current information embodied in today's nominal interest rate. However, the monetary authorities can save wage setters the costs of “indexing†to the interest rate. A contemporaneous money supply feedback rule is as effective as wage indexation. A lagged rule, relevant under a regime of money supply targeting, is also as effective if investors use the interest rate. Both rules have the same implications for the real interest rate as Poole's combination policy. However, the two rules have strikingly different implications for the nominal interest rate.

This paper examines the effects of unexpected inflation on the returns to the common stock of companies with different short-term monetary positions, and different long-term monetary positions, and different amounts of nominal tax shields. Unlike most previous studies of the effects of nominal contracting, we distinguish between expected and unexpected inflation in our tests. Surprisingly, over the 1947-79 period there is little evidence that stockholders of net debtor firms benefit from unexpected inflation relative to the stockholders of net creditor firms. We conclude that wealth effects caused by unexpected inflation are not an important factor in explaining the behavior of stock prices.

A general equilibrium model of optimal employment contracts is developed where firms have better information about labor's marginal product than workers. It is optimal for the wage to be tied to the level of employment, to prevent the firm from falsely stating that the marginal product is low and cutting the wage. It is shown that an observed aggregate shock that leads to an interindustry shift in labor demand and that would have no effect on total employment under symmetric information leads to a reduction in employment when firms and workers have asymmetric information.