Product Market Efficiency: The Bright Side of Myopic, Uninformed, and Passive External Finance
Speaker
Abstract
| Short-term financial claims held by uninformed outside investors impose a tax on insider opportunism by diluting the ownership stake of opportunistic owner-managers. By thus limiting managerial opportunism, short-term financing increases firm value and social welfare. When given a choice, owner-managers will prefer socially beneficial short-term external financing over internal financing. We show that these results are equilibrium outcomes of a model where firms can act opportunistically in product markets. Moreover, we document the same beneficial effect of short-term external finance in a laboratory experiment implementing this game. |
| Thomas Noe, (PhD, Texas, Austin) is Ernest Butten Professor of Management Studies at the Saïd Business School. Prior to joining the School, he held the A. B. Freeman Chair in Finance at Tulane University. He is one of the 20 most prolific researchers in elite finance journals since the turn of the century, appearing in journals such as the American Economic Review, Journal of Finance, Journal of Financial Economics, Review of Economic Studies, and Review of Financial Studies. Currently, he is a co-editor of the Journal of Economics and Management Strategy. In addition, he has served on numerous panels, programme committees, and editorial boards, including the board of the Review of Financial Studies. Over the span of his career, he has visited academic and research institutions on five continents, including the Federal Reserve Bank, Hong Kong University of Science and Technology, Massachusetts Institute of Technology, University of Auckland, Universidad de Chile, Universidad los Andes, University of Oxford, and the University of Queensland. |
| The Erasmus Finance Seminar is jointly sponsored by ERIM and the Tinbergen Institute. |
| Contact information: |
| Viorel Roscovan |
