Walter Novaes

Sharing of Control as a Corporate Governance Mechanism

This paper identifies a new corporate governance mechanism: sharing control. We show that bargaining problems among multiple controlling shareholders may prevent inefficient investment decisions that harm minority shareholders. The same bargaining problems may block efficient investment decisions, though. By solving this trade-off, we show that the likelihood that shared control is efficient increases with three firm characteristics: overinvestment problems, the cost of verifying cash flows, and financing requirements. The model provides testable implications for the role that large shareholders play in corporate governance, contrasting shared control and monitoring as alternative governance mechanisms.

Managerial Turnover and Leverage under a Takeover Threat

How do shareholders perceive managers who lever up under a takeover threat? Increasing leverage conveys good news if it reflects managements ability to enhance value. It conveys bad news, though, if inefficient managers are more pressured to lever up than the efficient ones. This paper demonstrates that negative updating may prevail. Managers who lever up to end a takeover threat may thus commit to enhance value and yet increase their chances of being replaced by their shareholders. The model provides implications for the dispersion of intraindustry leverage and for the stock price reaction to debt-for-equity exchanges.

A pesquisa em economia no Brasil: uma avaliação empírica dos conflitos entre quantidade e qualidade

As several other professionals, economics researchers face a trade-off between quantity and quality. To evaluate this trade-off, I compare the publication records of 1209 professors of 54 top economics departments in the U.S. with the records of 94 professors in Brazil, who were awarded research grants by CNPq. The data show that, from 1999 to 2004, the CNPq researchers published a very small number of papers in international journals. Yet, they published more than their US peers, when we take into account publications in Brazilian journals. These findings suggest that the CNPq researchers sacrifice quality of research to achieve a larger number of publications.

Inflationary bias and state owned financial institutions

This article explains why the existence of state owned financial institutions makes it more difficult for a country to balance its budget. We show that states can use their financiaI institutions to transfer their deficits to the federal govemment. As a result, there is a bias towards Iarge deficits and high inflation rates. Our model also predicts that state owned financiaI institutions should underperform the market, mainly because they concentrate their portfolios on non-performing loans to their own shareholders, that is, the states. Brazil and Argentina are two countries with a history of high inflation that confirm our predictions .