Essays on corporate governance and communication within the firm [electronic resource]

My dissertation is focused primarily on the effect of communication between shareholders, senior management, and the company's board of directors, on the governance of the firm. In the first study I explore the advisory role of a target company board in takeovers. I show that coordination failures among target shareholders, such as free-riding, limit the board's ability to properly advise shareholders whether accepting a takeover offer is in their best interest based on its information. I demonstrate that even if there are no agency problems and the board's objective is to maximize shareholders' value, the board conceals information from shareholders in equilibrium, and shareholders might be better off if they could commit to ignoring the board's advice. By contrast, when the board is biased and behaves opportunistically, it becomes possible for information to be fully revealed and, consequently, shareholders' welfare might increase. More broadly, the study emphasizes the potential value of an expert's bias when advising a group of agents whose collective actions must be coordinated. I discuss shareholder activism in takeovers and communication during debt restructuring as examples for possible applications. In the second study (joint work with Nadya Malenko< SPAN class=skype_name_highlight_offline title=nadya.zhukova height="12px" width="15px"> < SPAN class=skype_name_mark> begin_of_the_skype_highlighting< /SPAN>           < SPAN class=skype_name_mark> end_of_the_skype_highlighting< /SPAN> < /SPAN> ) we analyze whether non-binding voting for shareholder proposals is an effective mechanism for conveying shareholder expectations. Shareholder proposals are a common form of shareholder activism. Voting for shareholder proposals, however, is non-binding in the sense that the management has the authority to reject the proposal even if it received majority support from shareholders. We show that in contrast to binding voting, non-binding voting generally fails to convey shareholder views when the interests of the manager and shareholders are not aligned. Surprisingly, the presence of an activist investor who can discipline the manager may enhance the advisory role of non-binding voting only if there is substantial conflict of interest between shareholders and the activist. In the final part of the dissertation, I study the implications of board members' expertise, and concerns for being seen as experts, on the incentives of the manager to collect information and communicate it to the board. The expertise of the board is particularly important in times when shareholders cannot rely on the manager to provide information. Our results demonstrate that even when the board acts in its shareholders' best interests, the board's expertise can harm shareholders' value by discouraging an opportunistic manager from collecting valuable information. This effect takes place exactly in times when a priori the manager and shareholders disagree on the optimal strategy. Moreover, we show that concerns for its reputation induce the board to act more like an expert, even when it is not. The board under-reacts to useful public information, and thereby gives more power to the manager on the expense of shareholders' value.

Advisor: Admati Anat R. primary advisor. Thesis advisor
Zwiebel Jeffrey primary advisor. Thesis advisor
DeMarzo Peter M. advisor. Thesis advisor
Kremer Ilan advisor. Thesis advisor
Yilmaz Bilge