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We study how the creation of an internal capital market (an ICM) can invite strategic responses in product markets that, in turn, shape firm boundaries. ICMs provide ex post resource flexibility, but come with ex ante commitment costs. Alternatively, stand-alones possess commitment ability but lack flexibility. By creating flexibility, integration can(More)
If short sellers can destroy firm value by manipulating prices down in a " bear raid, " an informed blockholder has a powerful natural incentive to protect the value of his stake by trading against them. However, he also has an incentive to use his information to generate trading profits. We show that these conflicting objectives create a multiplier effect,(More)
We model corporate voting outcomes when an informed trader, such as a hedge fund, can establish separate positions in a firm's shares and votes (" empty voting "). The positions are separated by borrowing shares on the record date, hedging economic exposure, or trading between record and voting dates. We find that the trader's presence can improve(More)
If managers, creditors, or other firm counterparties use stock prices when making decisions, short sellers may attempt to manipulate prices, inducing decisions that reduce firm value. However, an informed long-term shareholder has a natural incentive to ensure that prices send the right message so that the value of his existing stake is not harmed. While he(More)
We study how interactions between financing and investment decisions can shape firm boundaries in dynamic product markets. In particular, we model a new product market opportunity as a growth option and ask whether it is best exploited by a large incumbent firm (Integration) or by a separate, specialized firm (Non-Integration). Starting from a standard(More)
Existing models show that herding in decisions can cause significant information loss, inferior information aggregation and impaired decision making. However, we show that in a multi-stage decision setting with endogenous information production, herding on the initial decision can actually result in superior aggregate information and improved decisions.(More)
I show that firms may optimally sell blocks of their own equity to other firms in anticipation of future corporate control activity. In the model, a target and one potential acquirer, who may also be an alliance partner, can negotiate before synergy values are learned. I find that equity implements an optimal mechanism, allowing the partners to extract(More)
This paper studies financial properties of venture-capital backed start-ups through a continuous-time real-options patent-race model. Numerical analysis shows that patent races, relative to a joint monopoly, cause over-investment, value-dissipation, a higher CAPM beta, a higher return volatility and more negative return correlation when firms intensively(More)
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