Strategic Default and Equity Risk Across Countries

We show that the prospect of a debt renegotiation favorable to shareholders reduces the firm's equity risk. Equity beta and return volatility are lower in countries where the bankruptcy code favors debt renegotiations and for firms with more shareholder bargaining power relative to debt holders. These relations weaken as the country's insolvency procedure favors liquidations over renegotiations. In the limit, when debt contracts cannot be renegotiated, equity risk is independent of shareholders' incentives to default strategically. We argue that these findings support the hypothesis that the threat of strategic default can reduce the firm's equity risk.     

Cooperation and Status in Organizations

We report the results of experiments designed to test the effect of social status on contributions to a public good, with and without punishment. The experiments are conducted in four‐person groups in a “star” network, where one central player observes and is observed by the others. This imposes a social structure on the game, and gives the central player a leadership role in the group, simply by virtue of being commonly observed. We further manipulate status by allocating the central position to the person who earns the highest, or the lowest, score on a trivia quiz. These high‐status and low‐status treatments are compared, and we find that the effect of organizational structure—the existence of a central position—depends on the status of the central player. Higher status players are attended to and mimicked more systematically. Punishment has differential effects in the two treatments, and is least effective in the high‐status case.     

The Value of Control and the Costs of Illiquidity

We develop a search model of block trades that values the illiquidity of controlling stakes. The model considers several dimensions of illiquidity. First, following a liquidity shock, the controlling blockholder is forced to sell, possibly to a less efficient acquirer. Second, this sale may occur at a fire sale price. Third, absent a liquidity shock, a trade occurs only if a potential buyer arrives. Using a structural estimation approach and U.S. data on trades of controlling blocks of public corporations, we estimate the value of control, blockholders' marketability discount, and dispersed shareholders' illiquidity‐spillover discount.