Corporate Finance.

• Position: National Bureau of Economic Research's program

The NBER's Program on Corporate Finance met in Cambridge on November 14. Organizers Florencio Lopez de Silanes, NBER and Yale University, and Rafael La Porta, NBER and Harvard University, chose these papers to discuss:

Patrick Bolton, NBER and Princeton University, and Jose Scheinkman and Wei Xiong, Princeton University, "Executive Compensation and Short-Termist Behavior in Speculative Markets" (NBER Working Paper No. 9722) Discussant: Sendhil Mullainathan, NBER and MIT

Mihir A. Desai, NBER and Harvard University; C. Fritz Foley, University of Michigan; and James R. Hines, Jr., NBER and University of Michigan, "A Multinational Perspective on Capital Structure Choice and Internal Capital Markets" (NBER Working Paper No. 9715) Discussant: Owen Lamont, NBER and Yale University

Eugene F. Fama, University of Chicago, and Kenneth R. French, NBER and Dartmouth College, "Financing Decisions: Who Issues Stocks?" Discussant: Stewart C. Myers, NBER and MIT

Francisco Perez-Gonzalez, Columbia University, "The Impact of Acquiring Control on Productivity: Evidence from Mexican Manufacturing Plants" Discussant: Luigi Zingales, NBER and University of Chicago

Lucian Bebchuk, NBER and Harvard University, "Asymmetric Information and the Choice of Corporate Governance Arrangements" Discussant: Nittai Bergman, MIT

Marianne Bertrand, NBER and University of Chicago; Antoinette Schoar, NBER and MIT; and David Thesmar, ENSAE, "Banking Deregulation and Industry Structure: Evidence from the French Banking Reforms of 1985" Discussant: Paola Sapienza, Northwestern University

Daron Acemoglu and Simon Johnson, NBER and MIT, "Unbundling Institutions" (NBER Working Paper No. 9934) Discussant: Andrei Shleifer, NBER and Harvard University

Bolton, Scheinkman, and Xiong present a multiperiod agency model of stock based executive compensation in a speculative stock market, where investors are overconfident and stock prices may deviate from underlying fundamentals and include a speculative option component. This component arises from the option to sell the stock in the future to potentially over-optimistic investors. The authors show that optimal compensation contracts may emphasize short-term stock performance, at the expense of long run fundamental value, as an incentive to induce managers to pursue actions that increase the speculative component in the stock price. This model provides a different perspective for the recent corporate crisis than the increasingly popular "rent...