New NBER Research9 February 2012 Fiduciary Duties Affect Equity-Debtholder ConflictsBo Becker and Per Strömberg find that managerial fiduciary duties affect conflicts between equity versus bond holders in a way that influences capital structure choices and economic welfare. They focus on a 1991 Delaware bankruptcy ruling that changed the nature of corporate directors’ fiduciary duties in firms incorporated in that state. After the ruling, managers had less incentive to favor equity over debt if their firms were close to being in financial distress. The researchers find that this ruling increased the likelihood of equity issues, increased investment, and reduced firm risk, but only among firms that were relatively close to default. They also find that the ruling was followed by an increase in average leverage, a reduction in the use of covenants, and ultimately in an increase in firm values.
( ...more... ) 8 February 2012 The CEO's Age and the Likelihood of AcquisitionsCorporate mergers frequently force target-firm CEOs to retire early, costing them the forgone benefits of staying employed until their planned retirement date. Dirk Jenter and Katharina Lewellen find that the likelihood of receiving a takeover bid increases sharply when target CEOs reach age 65: the probability of a bid is close to 4 percent per year for target CEOs below age 65 but it increases to 6 percent per year for the retirement-age group. Moreover, observed takeover premiums and target announcement returns are significantly lower when target CEOs are over age 65.
( ...more... ) 7 February 2012 International Policy CoordinationBarry Eichengreen reviews 150 years of historical experience and concludes that successful international economic policy coordination is most likely to occur in four sets of circumstances: 1) when it focuses on technical issues; 2) when cooperation is institutionalized –that is, when procedures and precedents create presumptions about the appropriate conduct of policy and reduce the transactions costs of reaching an agreement; 3) when the concern is to preserve an existing set of policies and behaviors (a policy regime); and 4) when it occurs in the context of broad comity among nations.
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