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Market-Based Corrective Actions

Resource type
Authors/contributors
Title
Market-Based Corrective Actions
Abstract
Many economic agents take corrective actions based on information inferred from market prices of firms' securities. Examples include directors and activists intervening in the management of firms and bank supervisors taking actions to improve the health of financial institutions. We provide an equilibrium analysis of such situations in light of a key problem: if agents use market prices when deciding on corrective actions, prices adjust to reflect this use and potentially become less revealing. We show that market information and agents' information are complementary, and discuss measures that can increase agents' ability to learn from market prices.
Publication
Review of Financial Studies
Volume
23
Issue
2
Pages
781-820
Date
2010
Citation
Bond, P., Goldstein, I., & Prescott, E. S. (2010). Market-Based Corrective Actions. Review of Financial Studies, 23, 781–820.
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