Yang Guo

We develop a general equilibrium model to study how decentralized financial markets with profit-maximizing investors and firms can improve welfare through activist investment. Monopolistic competition among firms with transition costs leads to an under-provision of consumer-preferred varieties. Activist funds reduce these transition costs through costly monitoring financed by management fees and saver-funded leverage. Welfare improvements rely on complementary role of investor and savers: investors finance activism through fees, while savers provide low-cost deposit funding at scale. The model also generates empirical predictions: activism is most effective in industries with high transition costs and moderate differences in consumer preference intensity across product types.

This paper presents a model of how censorship on social media platforms influences public sentiment. Users (citizens) choose what opinion to express, balancing honesty with conformity to the majority to gain popularity. A platform operator (the dictator) can mute users at a cost to shift the visible public sentiment toward her preferred value. Citizens vary in how much they care about honesty versus conformity, captured by a parameter reflecting individualism or collectivism. The model shows that censorship can lead to polarisation: some users conform to avoid being muted, while others express their true views and are silenced. The degree of polarisation increases when users are more individualistic and when the dictator’s preference is moderate rather than extreme. These results help explain why censorship has different effects across platforms and user populations, and shed light on the dynamics of control and expression in public.

This paper develops a theory of why large index fund families, while passive in investment, can be active in lobbying. As index funds grow in size and importance, their interests as fund families may diverge from those of their investors. I argue that this tension helps explain why the biggest managers lobby on issues that shape their business, even if the outcomes may not always align with the interests of passive investors.

We model spinoffs of polluting subsidiaries as private value auctions. Greener preference among current shareholders results in more spinoffs. However, the winning buyer who has the highest valuation of the subsidiary tends to care least about the environment; and therefore, creates more pollution after acquiring the subsidiary. Despite the ex-post undesirable outcome, the possibility of spinoffs shifts the manager towards greener actions ex-ante. Such a “green shift” occurs even when the manager has stronger green preferences than shareholders. Finally, spinoffs only exist when agents’ green preferences are “narrow” — they suffer disutility only from self-generated pollution rather than economy-wide pollution. 

Since investor participation is essential for successful IPOs, we hypothesise that issuers share value gain from IPOs with IPO investors, resulting in IPO underpricing. We test the positive relation between value gain and underpricing from the liquidity angle, as improved liquidity via IPO increases firm value. We find supporting evidence that underpricing is positively related to the expected post-IPO liquidity of the issuer. Using two regulation changes as exogenous shocks to share liquidity before and after IPO, we further show that underpricing is more pronounced with better expected postIPO liquidity or lower pre-IPO liquidity.