London School of Economics and Political Science

About: London School of Economics and Political Science is a education organization based out in London, United Kingdom. It is known for research contribution in the topics: Population & Politics. The organization has 8759 authors who have published 35017 publications receiving 1436302 citations.

Public Trading and Private Incentives

Abstract: This article studies the link between public trading and the activity of a firm’s large shareholder who can affect firm value. Public trading results in the formation of a stock price that is informative about the large shareholder’s activity. This increases the latter’s incentives to engage in value-increasing activities. Indeed, if he has to liquidate part of his stake before the effect of his activity is publicly observed, a more informative price rewards him for his activity. Implications are derived for the decision to go public, capital structure, and security design. We consider a firm with a large shareholder and otherwise dispersed shares, which are publicly traded. The block holder is an insider in the sense that he can undertake actions that directly affect the firm’s value. Moreover, the insider might not take all value-increasing actions, as at least some of them involve a private cost for him. In other words, there is an incentive problem. The article’s main premise is that public trading, as part of the price formation process, generates information not only about exogenous factors affecting firm value, but also about the insider’s activity. For instance, as a result of public trading, a firm’s stock price will incorporate the market’s evaluation of how a controlling shareholder allocates corporate resources. We identify two sources of incentives for the insider to engage in activities that will increase firm value. The first one is his stake in the firm. Since the insider participates in a value increase in proportion to his equity stake, a larger stake increases the benefit to him from the firm value being high. The view that large shareholders affect firm value is indeed widespread [Shleifer and Vishny (1997)]. They alleviate the free-rider problem pervasive in firms with passive dispersed investors, unable or unwilling to affect the firm’s operations, that is, outsiders.

A Preferred-Habitat Model of the Term Structure of Interest Rates

Abstract: We model the term structure of interest rates as resulting from the interaction between investor clienteles with preferences for specific maturities and risk-averse arbitrageurs. Because arbitrageurs are risk averse, shocks to clienteles' demand for bonds affect the term structure --- and constitute an additional determinant of bond prices to current and expected future short rates. At the same time, because arbitrageurs render the term structure arbitrage-free, demand effects satisfy no-arbitrage restrictions and can be quite different from the underlying shocks. We show that the preferred-habitat view of the term structure generates a rich set of implications for bond risk premia, the effects of demand shocks and of shocks to short-rate expectations, the economic role of carry trades, and the transmission of monetary policy.

Comparative Tolerability and Harms of Individual Statins A Study-Level Network Meta-Analysis of 246 955 Participants From 135 Randomized, Controlled Trials

Abstract: Background—Our objective was to estimate the comparative harms of individual statins using both placebo-controlled and active-comparator trials. Methods and Results—We systematically reviewed rando...