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DISCUSSION
Published: 05/01/1971 | DOI: 10.1111/j.1540-6261.1971.tb00913.x
Stewart C. Myers
Outside Equity
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00239
Stewart C. Myers
Equity financing is modeled when cash flows and asset values are not verifiable. Investors have enforceable property rights to the firm's assets, but cannot prevent insiders (managers or entrepreneurs) from capturing cash flow. Insiders must coinvest and pay in each period a dividend sufficient to ensure outside investors' participation for at least one more period. Intervention by the investors must be limited by an agreement with insiders or by costs of collective action. Basic models are extended to show why firms go public and why agency costs necessarily arise when the act of investment is not immediately verifiable.
The Capital Structure Puzzle
Published: 07/01/1984 | DOI: 10.1111/j.1540-6261.1984.tb03646.x
STEWART C. MYERS
A Theory of Takeovers and Disinvestment
Published: 03/20/2007 | DOI: 10.1111/j.1540-6261.2007.01224.x
BART M. LAMBRECHT, STEWART C. MYERS
We present a real‐options model of takeovers and disinvestment in declining industries. As product demand declines, a first‐best closure level is reached, where overall value is maximized by closing the firm and releasing its capital to investors. Absent takeovers, managers of underleveraged firms always close too late, although golden parachutes may accelerate closure. We analyze the effects of takeovers of under‐leveraged firms. Takeovers by raiders enforce first‐best closure. Hostile takeovers by other firms occur either at the first‐best closure point or too early. Closure in management buyouts and mergers of equals happens inefficiently late.
A Lintner Model of Payout and Managerial Rents
Published: 09/12/2012 | DOI: 10.1111/j.1540-6261.2012.01772.x
BART M. LAMBRECHT, STEWART C. MYERS
We develop a dynamic agency model in which payout, investment, and financing decisions are made by managers who attempt to maximize the rents they take from the firm, subject to a capital market constraint. Managers smooth payout to smooth their flow of rents. Total payout (dividends plus net repurchases) follows Lintner's (1956) target adjustment model. Payout smooths out transitory shocks to current income and adjusts gradually to changes in permanent income. Smoothing is accomplished by borrowing or lending. Payout is not cut back to finance capital investment. Risk aversion causes managers to underinvest, but habit formation mitigates the degree of underinvestment.
The Internal Governance of Firms
Published: 05/23/2011 | DOI: 10.1111/j.1540-6261.2011.01649.x
VIRAL V. ACHARYA, STEWART C. MYERS, RAGHURAM G. RAJAN
We develop a model of internal governance where the self‐serving actions of top management are limited by the potential reaction of subordinates. Internal governance can mitigate agency problems and ensure that firms have substantial value, even with little or no external governance by investors. External governance, even if crude and uninformed, can complement internal governance and improve efficiency. This leads to a theory of investment and dividend policy, in which dividends are paid by self‐interested CEOs to maintain a balance between internal and external control.
DISCUSSION
Published: 05/01/1975 | DOI: 10.1111/j.1540-6261.1975.tb01821.x
M. J. Brennan, Willard T. Carleton, Stewart C. Myers