We propose a model of an incomplete markets economy with production, in which the firm acts as financial innovator by issuing claims against its stock. The firm’s objective is to maximize its adjusted value, which is the sum of the market value and the shareholders’ surplus from their trades in the stock markets. If a firm maximizes its adjusted value, then its financial policy is relevant (i.e...

the emergence and unprecedented growth of joint stock companies is undoubtedly one of the most significant economic developments.one of the outcomes of this development is the separation of ownership and control of the companies. such separation make it possible for the managers of the companies to make dicisions to serve their interes at the expense of the companies shareholders .this conflict...

This paper examines the monitoring role of Japanese banks during the 1990s’ banking crisis. The results show a negative association between bank ties and shareholder wealth for a sample of Japanese M&A acquirers in 1990-2004. Further results implicate that banks arranged the acquisitions to coinsure target debts. The overall evidence highlights that banks restructured their loans to improve the...

This paper uses a quasi-experimental framework provided by recent changes in Russian corporate law to study the effect of investor protection on the value of shares. The legal change analyzed involves the empowerment of preferred (non-voting) shareholders to veto unfavorable changes in their class rights. Based on a novel hand-collected dataset of dual class stock companies in Russia and using ...

This paper analyzes inspection and closure policies of a bank, and the strategic reaction of its managers/shareholders when they can (costly) manipulate the information available to the regulator. We derive optimal intervention policy, and analyze its effect on managerial strategies. Regulatory intervention may induce shareholders to manipulate the information available to the regulator in orde...

Various theories and philosophies have provided the foundation for the development of alternative forms of corporate governance systems around the world. Furthermore, as economies have evolved through time it appears that corporate executives have deviated from the sole objective of maximizing shareholders’ wealth. Owners of the capital have responded to these forces for the purpose of preservi...