We analyze the impact of takeover threats on long-term relationships between the target owners and other stakeholders. In the absence of takeovers, stakeholders' bargaining power increases their incentive to invest but reduces the owners' incentive to invest. The threat of a takeover that would transfer value from the stakeholders reduces their ex ante investment. However, the stakeholders may appropriate ex post some value created by a takeover. This can prevent some value-enhancing takeovers. We examine extensions to the disciplinary role of takeovers, takeover defense mechanisms, and trade credit, and discuss empirical predictions.

Journal Article Financial Analysis and Corporate Strategy Get access Financial Analysis and Corporate Strategy. Mark Grinblatt and Sheridan Titman. Irwin/McGraw-Hill, 1998. 864 pp., $78.75 (hardcover). ISBN 0-256-09939-1. Gilles Chemla Gilles Chemla University of British Columbia THEMA(CNRS), and CEPR Search for other works by this author on: Oxford Academic Google Scholar The Review of Financial Studies, Volume 13, Issue 1, January 2000, Pages 249–253, https://doi.org/10.1093/rfs/13.1.249 Published: 15 June 2015

Building parable economies embedding econometricians, we view alternative estimators (Instrumental variables, fuzzy regression discontinuity, natural experiments, OLS, event studies) from the perspective of privately informed decision-makers, e.g., CFOs. Instrumental variable estimates can be misleading since randomization through observable instruments eliminates signal content arising from discretion. If the goal is informing discretionary decisions, rather than predicting outcomes after forced/mistaken actions, instrumentation is problematic, whereas OLS or event studies can be sufficient. The analysis shows that the utility of alternative estimators hinges upon often neglected assumptions about agent/econometrician information sets, as distinct from exclusion restrictions. We recommend parable economy estimation before real-world IV estimation.

What determines securitization levels, and should they be regulated? To address these questions we develop a model where originators can exert unobservable effort to increase expected asset quality, subsequently having private information regarding quality when selling ABS to rational investors. Absent regulation, originators may signal positive information via junior retentions or commonly adopt low retentions if funding value and price informativeness are high. Effort incentives are below first‐best absent regulation. Optimal regulation promoting originator effort entails a menu of junior retentions or one junior retention with size decreasing in price informativeness. Zero retentions and opacity are optimal among regulations inducing zero effort.

We examine executive compensation in a general equilibrium model with dynamic moral hazard, where executives' outside options are endogenously determined by equilibrium market compensation. Firms provide incentives through compensation packages featuring deferred payments as “carrots” and termination as “sticks.” Crucially, the effectiveness of termination as an incentive device is undermined by the outside options available to executives. As individual firms fail to internalize the effect of their compensation design on these endogenous outside options, the equilibrium is generally inefficient. Compared to shareholder‐value‐maximizing compensation packages, executives are paid too much, too soon, and keep their jobs for too long.