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 informed large shareholders choose between making a bid and 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 disciplinary control change. Our model shows how an evolution towards takeover activism -characterized by a symbiotic relationship between activist hedge funds and private equity- arises to overcome asymmetric information and collective action problems through a form of intermediation.

This paper studies how public information, such as proxy advice, affects shareholder voting and, thus, corporate decision-making. Although public information improves the voting decisions of uninformed shareholders, it also induces privately informed shareholders to sell their shares rather than to vote. As a result, public information impairs information aggregation by voting but improves information aggregation by trading. We show that, overall, public information can undermine corporate decision-making. Furthermore, the effect of more precise public information on corporate decision-making is non-monotonic. 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. We show that even though votes are cheaper in the equity lending market, activists endogenously choose to purchase votes in both markets.

We develop a theory of conversations as part of the knowledge-creation process in the firm. Conversations focused on a specific topic create more knowledge than superficial ones. At the same time, differences in coworkers' interests, or in their ability to take credit for new insights, may prevent focused conversations. We show that, as a result, a manager who can identify productive topics benefits from enforcing focus by setting an agenda. Conversely, in innovative firms that explore fundamentally new ideas, managers have to rely on workers' expertise in identifying productive topics, and thus optimally refrain from binding the workers to an agenda. We derive a firm's optimal organizational structure, examine how this evolves over the firm's lifecycle, and outline the implications for the optimal composition of its workforce.

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.