Market-Based Corrective Actions
Year: 2009
Type: article
Abstract: Many economic agents take corrective actions based on information inferred from market prices of firms’ securities. Examples include directors and activists intervening in the management of firms and bank supervisors taking actions to improve the health of financial institutions. We provide an equilibrium analysis of such situations in light of a key problem: if agents use market prices when deciding on corrective actions, prices adjust to reflect this use and potentially become less revealing. We show that market information and agents’ information are complementary, and discuss measures that can increase agents’ ability to learn from market prices.
Source: Review of Financial Studies
DOI: 10.1093/rfs/hhp059
Authors: Philip Bond, Itay Goldstein, Edward Simpson Prescott
Institutions: University of Pennsylvania, Federal Reserve Bank of Richmond
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2066368280