Andrei Shleifer42
David Scharfstein24
42Andrei Shleifer
24David Scharfstein
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This paper develops a simple equilibrium model of CEO pay. CEOs have different talents and are matched to firms in a competitive assignment model. In market equilibrium, a CEO's pay depends on both the size of his firm, and the aggregate firm size. The model determines the level of CEO pay across firms and over time, offering a benchmark for calibratable(More)
We test a catering theory describing how stock market mispricing might influence individual firms' investment decisions. We use discretionary accruals as our proxy for mispricing. We find a positive relation between abnormal investment and discretionary accruals; that abnormal investment is more sensitive to discretionary accruals for firms with higher R&D(More)
  • Marco Pagano, Fabio Panetta, Luigi Zingales, Espen Eckbo, Tullio Jappelli, Mario Massari +8 others
Using a large database of private firms in Italy, we analyze the determinants of initial public offerings (IPOs) by comparing the ex ante and ex post characteristics of IPOs with those of private firms. The likelihood of an IPO is increasing in the company's size and the industry's market-to-book ratio. Companies appear to go public not to finance future(More)
  • Gregory R Duuee, Chunsheng Zhou, We Thank, George Fenn, Jeremy Stein, J P Morgan
  • 1998
Previously circulated under the title \Banks and credit derivatives: Is it always good to have more risk management tools?" Abstract We model the eeects on banks of the introduction of a market for credit derivatives; in particular, credit-default swaps. A bank can use such swaps to temporarily transfer credit risks of their loans to others, reducing the(More)
This paper shows that CEOs are fired after bad firm performance caused by factors beyond their control. Standard economic theory predicts that corporate boards filter out exogenous industry and market shocks from firm performance before deciding on CEO retention. Using a hand-collected sample of 3,365 CEO turnovers from 1993 to 2009, we document that CEOs(More)
This is the first study that uses Merton's (1974) option pricing model to compute default measures for individual firms and assess the effect of default risk on equity returns. The size effect is a default effect, and this is also largely true for the book-to-market (BM) effect. Both exist only in segments of the market with high default risk. Default risk(More)
We survey 384 financial executives and conduct in depth interviews with an additional 23 to determine the factors that drive dividend and share repurchase decisions. Our findings indicate that maintaining the dividend level is on par with investment decisions, while repurchases are made out of the residual cash flow after investment spending. Perceived(More)
One of the most striking portfolio puzzles is the " disposition effect " : the tendency of individuals to sell stocks in their portfolios that have risen in value since purchase, rather than fallen in value. Perhaps the most prominent explanation for this puzzle is based on prospect theory. Despite its prominence, this explanation has received little formal(More)
Using the historical random assignment of MBA students to sections at Harvard Business School, I show that executive peer networks are important determinants of managerial decision-making and firm policies. Within a class, executive compensation and acquisitions strategy are significantly more similar among graduates from the same section than among(More)