Paul Voss

This paper identifies an upside of the separation of ownership and control, typically the source of inefficiencies in the theory of the firm. Because insiders obtain private information by exercising control, the separation of ownership and control leads to a separation of ownership and information. We show that this separation is necessary for efficient trade in the market for corporate control. The analysis reveals how strategic communication between inside and outside shareholders facilitates takeovers by eliciting external bidders'  private information.  Our results call into question mandatory disclosure requirements during takeovers.

According to existing theories, short-term creditors promote corporate governance by responding quickly to new information. I show that this very feature of short-term debt can also undermine corporate governance. Though moderate levels of short-term debt improve the efficacy of blockholder exit and increase blockholders' incentives to engage with the firm, high levels of short-term debt impair governance. In particular, high levels of short-term debt render the threat of exit noncredible, public engagements too risky, and undermine blockholders' incentives to engage behind the scenes. I identify a challenge in the governance of firms that rely on short-term funding such as banks.

In a canonical takeover model we let an informed large shareholder choose between making a bid or initiating a sale to another acquirer. Such takeover activism complements direct takeovers because the very choice mitigates the asymmetric information problem, thereby improving efficiency. As more investors enter the market for corporate control, takeover activism increasingly substitutes for direct takeovers and becomes the prevailing mode of effectuating control changes. Our theory thus proposes that investor activism has not superseded disciplinary acquisitions but instead brought about a new modus operandi: takeover activism, characterized by a symbiotic relationship between private equity and activist hedge funds.

This paper studies how proxy advice affects corporate decision-making when shareholders can vote and trade. Because proxy advice correlates shareholders’ votes, it is informative about the vote outcome. Thus, shareholders with conflicting information, anticipating a value-decreasing vote outcome, have an incentive to sell their shares precisely when their vote would be most valuable. The exit of well-informed shareholders impairs information aggregation and, hence, corporate decision-making. We find that proxy advice can reduce firm value – even if shareholders can base their vote on the share price. Our results give rise to new empirical predictions and have implications for regulation.

The equity lending and option market both allow investors to decouple voting and cash flow rights of common shares. We provide a theory of this decoupling. While either market enables investors to acquire voting rights without cash flow exposure, empirical studies demonstrate a substantial difference in implied vote prices. Our model explains this surprising difference by uncovering the mechanism by which vote prices in the equity lending market are endogenously lower than those implied by the option market. Nonetheless, we show that even though votes are cheaper in the equity lending market, activists endogenously choose to decouple using both markets.

We develop a theory of conversations. Two agents with different interests take turns choosing the topic of the conversation. Talking about a single topic allows to delve deeper, making the conversation more informative (or enjoyable). To capture this, we assume that the marginal utility from conversing increases when the agents stay on topic. The equilibrium conversation is extreme: it either maximizes or minimizes welfare. Long conversations tend to be deep and thus efficient. Short ones are often superficial. The topic of a deep conversation depends in subtle ways on who speaks when. Applications range from echo chambers to team production.

We present a model that helps explain why only few blockholders seek board representation despite little direct costs. In the model, inefficiently few blockholders take a board seat because it signals adverse information to outside investors, lowering trading profits. However, once taken, board seats commit blockholders to stay invested and monitor management. In light of our results, negative stock returns to appointments of blockholder-directors need not reflect rent extraction but are in line with blockholders improving performance. We present evidence consistent with our model’s predictions using German data, which mitigates endogeneity concerns and provides considerable variation in blockholders.