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Corporate Governance

: The Harvard Law School Corporate Governance Blog

Does the Stock Market Harm Investment Incentives?

By Harvard Law School Program on Corporate Governance

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Editor?s Note: Alexander Ljungqvist is Professor of Finance at New York University.

In the paper, Does the Stock Market Harm Investment Incentives? which was recently made publicly available on SSRN, my co-authors, John Asker and Joan Farre-Mensa, and I examine whether the stock market harms investment incentives. The theory literature in economics and finance has long argued that the separation of ownership and control following a stock market listing can lead to agency problems between managers and dispersed stock market investors and hence to suboptimal investment decisions. The literature is divided on whether overinvestment (i.e., empire building) or underinvestment (due to rational short-termism) will result, or indeed whether effective corporate governance mechanisms can be devised to ensure investment does not suffer (Tirole (2001), Shleifer and Vishny (1997)).

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Full post as published by The Harvard Law School Corporate Governance Blog on July 12, 2010 (boomark / email).