Using data on auctions of companies, we estimate valuations (maximum willingness to pay) of strategic and financial bidders from their bids. We find that a typical target is valued higher by strategic bidders. However, 22.4% of targets in our sample are valued higher by financial bidders. These are mature, poorly performing companies. We also find that (i) valuations of different strategic bidders are more dispersed and (ii) valuations of financial bidders are correlated with aggregate economic conditions. Our results suggest that different targets appeal to different types of bidders, rather than that strategic bidders always value targets more because of synergies.

We study the stock market's reaction to the unexpected death of a top executive or board chair for insight into grey director incentives. Whereas there is little debate as to the motives of inside and strict outside directors, the allegiance of grey directors is less certain. We find that grey directors' dominant incentive depends on whether the firm has a succession plan or not. In firms with a succession plan, grey directors' primary motive is to maintain their business ties to the firm. Absent a succession plan, the stock market expects grey directors to use their influence to hire a higher quality replacement, particularly when these directors hold a large equity stake. Our findings suggest that grey directors place their interests as shareholders first when a replacement decision is likely to weaken their business ties with the firm. Grey directors appear to influence the choice of a higher quality replacement whether that person is an insider or outsider.

During the past decade, non-bank institutional investors are increasingly taking larger roles in the corporate lending than they historically have played. These non-bank institutional lenders typically have higher required rates of return than banks, but invest in the same loan facilities. In a sample of 20,031 leveraged loan facilities originated between 1997 and 2007, facilities including a non-bank institution in their syndicates have higher spreads than otherwise identical bank-only facilities. Contrary to risk-based explanations of this finding, non-bank facilities are priced with premiums relative to bank-only facilities in the same loan package. These non-bank premiums are substantially larger when a hedge or private equity fund is one of the syndicate members. Consistent with the notion that firms are willing to pay a premium when loan facilities are particularly important to them, the non-bank premiums are larger when borrowing firms face financial constraints and when capital is less available from banks.

While filtering has long been considered the primary mechanism by which markets supply low-income housing, direct estimates of that process have been absent. This has contributed to doubts about the viability of markets and to misplaced policy. I fill this gap by estimating a “repeat income” model using 1985–2011 panel data. Real annual filtering rates are faster for rental housing (2.5 percent) than owner-occupied (0.5 percent), vary inversely with the income elasticity of demand and house price inflation, and are sensitive to tenure transitions as homes age. For most locations, filtering is robust which lends support for housing voucher programs.

We employ a comprehensive data set and a variety of methods to provide evidence on the magnitude of large banks’ funding advantage in Canada in addition to the extent to which market discipline exists across different securities issued by the Canadian banks. The banking sector in Canada provides a unique setting in which to examine market discipline along with the prospects of proposed reforms because Canada has no history of government bailouts, and an implicit government guarantee has been in effect consistently since the 1920s. We find that large banks have a funding advantage over small banks after controlling for bank-specific and market risk factors. Large banks on average pay 80 basis points and 70 basis points less, respectively, on their deposits and subordinated debt. Working with hand-collected market data on debt issues by large banks, we also find that market discipline exists for subordinated debt and not for senior debt.

This article provides evidence that involuntary unemployment, and the segmentation of labour markets into firms offering “good” and “bad” jobs, may both arise as a consequence of contractual incompleteness. We provide a simple model that illustrates how unemployment and market segmentation may jointly emerge as part of a market equilibrium in environments where work effort is not third-party verifiable. Using experimental labour markets that differ only in the verifiability of effort, we demonstrate empirically that contractual incompleteness can cause unemployment and segmentation. Our data are also consistent with the key channels through which the model explains the emergence of both phenomena.

To understand the thinking process in private information games, we use “Mousetracking” to record which payoffs subjects attend to. The games have three information states and vary in strategic complexity. Subjects consistently deviate from Nash equilibrium choices and often fail to look at payoffs which they need to in order to compute an equilibrium response. Choices and lookups are similar when stakes are higher. When cluster analysis is used to group subjects according to lookup patterns and choices, three clusters appear to correspond approximately to level-3, level-2, and level-1 thinking in level-k models, and a fourth cluster is consistent with inferential mistakes (as, for example, in QRE or Cursed Equilibrium theories). Deviations from Nash play are associated with failure to look at the necessary payoffs. The time durations of looking at key payoffs can predict choices, to some extent, at the individual level and at the trial-by-trial level.

Using transactions generally overlooked in the compensation literature—joint ventures, strategic alliances, seasoned equity offerings (SEOs), and spin-offs—we find that, beyond compensation for increases in firm size or complexity, chief executive officers (CEOs) are rewarded for their deal-making activities. Boards pay CEOs for the core motivation of the deal, as well as for deal volume. We find that compensating for volume instead of core value creation occurs under weak board monitoring and that in deal-making firms, neither CEO turnover nor pay-for-performance responds to underperformance. We introduce an input monitoring explanation for these results: boards compensate for deal volume because of their inability to perfectly monitor outputs.

Using a unique and rich database of high-technology firms in China, we show that effective enforcement of intellectual property rights at the provincial level is critical in encouraging financing and investing in R&D. Better enforcement of intellectual property (IP) rights positively affects firms' ability to acquire new external debt and allows firms to invest in more R&D, generate more innovation patents, and produce more sales from new products. Our results suggest that facilitating financing and investing in R&D are the channels through which better IP rights enforcement can affect economic growth.

This paper examines the role of local attitudes toward gambling on corporate innovative activity. Using a county’s Catholics-to-Protestants ratio as a proxy for local gambling preferences, we find that firms located in gambling-prone areas tend to undertake riskier projects, spend more on innovation, and experience greater innovative output. We contrast the local gambling effect with chief executive officer (CEO) overconfidence, another behavioral effect reported to influence innovation. We find that local gambling preferences are a stronger determinant of innovative activity, with CEO overconfidence being more relevant to innovation in areas where gambling attitudes are strong.