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Financial distress, Bankruptcy, Corporate governance, G30, G33,

We show that entrepreneurs may prefer to allow insider trading even when it is not socially optimal. We examine a model in which an insider/ manager allocates resources on the basis of his private information and outside information conveyed through the secondary-market price of the jirm's shares. If the manager is allowed to trade, he will compete with informed outsiders, reducing the equilibrium quality of outside information. While the benefits to production of outside information are the same for society and entrepreneurs, we show that the social and private costs are digerent. Thus,entrepreneurs and society may disagree on the conditions under which insider trading restrictions should be imposed.

Numerous empirical studies document patterns in the means and variances of security returns measured over periods that are punctuated by market closures. This article develops a multiperiod model in which closures delay the resolution of uncertainty, thereby redistributing risk across time and agents. Since agents are risk averse in the model, this redistribution affects the equilibrium price, altering risk premia, liquidity costs, and the degree of informational asymmetry. As a consequence, closures alter both the means and variances of returns. The article demonstrates that closures can generate a variety of mean and variance effects, including those that mirror the empirical phenomena.

This paper examines how information becomes reflected in prices when investment decisions are delegated to fund managers whose tenure may be shorter than the time it takes for their private information to become public. We consider a sequence of managers, where each subsequent manager inherits the portfolio of their predecessor.We show that the inherited portfolio distorts the subsequent manager's incentive to trade on long-term information. This allows erroneous past information to persist, causing mispricing similar to a bubble.We investigate the magnitude of the mispricing. In addition, we examine endogenous information quality. In some cases, information quality increases when the manager's expected tenure decreases. MORE THAN EVER BEFORE, investors delegate the management of their investment portfolios to professional fund managers. 1 Due to mobility and turnover, the expected tenure of a manager may be shorter than the investment horizon of a typical investor. 2 Given this horizon mismatch, fund managers may have less incentive to collect and trade on long-term information than do the investors they trade for. As a result, the prices in markets with more delegated investment will reflect less long-term information than those markets where long-lived investors manage their own portfolios. The amount of long-term information that is reflected in prices is likely also to change with market conditions. As a manager's

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We develop an agency model in which managerial information manipulation creates pooling and entails ex post costs internal and/or external to the firm. We examine the implications of the strategic interactions between shareholders (who set internal governance and managerial incentive compensation), the manager (who exerts effort and reports on its outcome), and an external regulatory authority or RA (who investigates for fraud and levies penalties ex post). When the RA cannot pre-commit to an ex post investigation strategy, a fraudulent equilibrium obtains if the firm's internal governance costs are sufficiently high. Consistent with (so far fairly scant) post-SOX empirical evidence, but the opposite of the implications of signal-jamming models and equilibria with pre-commitment, the model implies an increase in minimum internal governance standards or ex post fraud penalties (as with SOX) results in decreased equilibrium pay-for-performance sensitivity and firm performance.