Finance, Control, and Efficiency in Firms SFB TR 15 B3 Institute for Research on Collective Goods

General Research Questions  What are the efficiency implications of availability of funds?  How is the answer to this question affected by different modes of governance?

Applications  Free Cash Flow, Retained Earnings and the Allocation of Funds for Investment  Cross-Subsidization in Public and Private corporations (Hellwig JPubE 2007)  Subsidization of Activities from General Tax Revenue (Hellwig 2004/8 Econometrica RfR)  Interaction of Distributive and Allocative Concerns (Hellwig 2004/8 Econometrica RfR, Bierbrauer JPET 2009, JPubE 2009)

Incentive Issues  Privatization and regulation as a governance mechanism (Bierbrauer 2010)  Private governance as an incentive mechanism  Credibility problems associated with private governance and self-finance.

Contracting Issues  Government regulation versus public management as an variation of complete versus incomplete contracting  Vertical integration in three-layer organizations: The tradeoff between vertical integration upstream and vertical integration downstream (Federal Government/Deutsche Bahn Rail/ Deutsche Bahn Transportation)

The Financial Crisis  Analyses of the Financial Crises and Reform (Hellwig De Economist 2009)  Can No-Bailout Policies be made credible?  What are Suitable Mechanisms for containing moral hazard in banks? (Admati, DeMarzo, Hellwig, Pfleiderer 2010)

Debt as Discipline?  Calomiris etc.: Debt finance disciplines banks. Therefore, 95 % debt finance is not a cause for worry.  Calomiris-Kahn (1991): Debt holders invest in information, run on the bank if they see something bad.  This prevents misfeats.  It also discourages bad behaviour (Excessive risk taking)

Research Questions  How does the tradeoff between the free-rider effect and the redistribution effect of information collection work?  Is there a tradeoff between incentives for information acquisition and information use?  Could the use of short-term (demandable) debt be explained by overconfidence effects?  Could the extensive use of debt finance be explained as excessive risk taking in a world with insufficient commitments rather than optimal contracts?  What happens to the Calomiris story if there is equity as well as debt? Would debt holders invest in information? Or would the look at the stock price?