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We investigate how firms trade off the interests of different stakeholders when their industry comes under antitrust scrutiny. Using cartel cases opened by the European Commission between 1994 and 2019 in a difference-in-difference setup, we find that cartel investigations adversely affect the performance of firms in the affected industry, as compared to adjacent industries. In response to the shock, firms resort to restructuring strategies by increasing mass layoffs and (to a smaller extent) large-scale asset sales within three years after the investigation is opened. The increase in mass layoffs is partly mitigated for firms operating in countries with stronger employment protection regulations. We find no evidence that firms pass the burden of the shock onto shareholders through lower payouts. Our paper suggests that providers of labor, rather than capital, are paying the price for increased antitrust scrutiny after infringements of competition law.

This paper develops a theory of the joint allocation of formal control and cash-flow rights in venture capital deals. We argue that when the need for investor support calls for very high-powered outside claims, entrepreneurs should optimally retain formal control in order to avoid excessive interference. Hence, we predict that risky claims should be be negatively correlated to control rights, both along the life of a start-up and across deals. This challenges the idea that risky claims should a ways be associated to more formal control, and is in line with contractual terms increasingly used in venture capital, in corporate venturing and in partnership deals between biotech start-ups and large drug companies. The paper provides a theoretical explanation to some puzzling evidence documented in Gompers (1997) and Kaplan and Stromberg (2000), namely the inclusion in venture capital contracts of contingencies that trigger both a reduction in VC control and the conversion! of her preferred stocks into common stocks.

When stakeholder protection is left to the voluntary initiative of managers, relations with social activists may become an eective entrenchment strategy for inecient CEOs. We thus argue that managerial turnover and firm value are increased by the institutionalization of stakeholder protection depriving incumbent CEOs of activists’ support. This finding provides a rationale for the emergence of specialized institutions (social auditors and ethic indexes) that help firms commit to stakeholder protection even in case of managerial replacement. Our theory also explains a recent trend whereby social activist organizations and institutional shareholders are showing a growing support for each others’ agenda.

We investigate how Internal Labor Markets (ILMs) allow complex organizations to accommodate positive and negative shocks calling for costly labor adjustments. Adverse shocks affecting one unit in the organization are shown to increase workers' mobility to other units rather than external firms, with stricter employment protection in the adversely hit unit causing an additional increase in internal mobility. The ILM response to adverse shocks is also stronger when the receiving units in the organization are more productive and have a better financing capacity. We also find that affiliated units faced with positive shocks to their growth opportunities rely on the ILM for new hires, especially managers in the top layers of the organization and other high-skilled workers, thus overcoming human capital bottlenecks that may curb growth. ILMs therefore emerge as a co-insurance mechanism within organizations, allowing them to bypass both firing and hiring frictions, and providing job stability to employees as a by-product.

This paper presents the first model where entry deterrence takes place through financial rather than product-market channels. In standard models of the interaction between product and financial markets, a firm’s use of financial instruments deters entry by affecting product market behavior, whereas in our model entry deterrence occurs by affecting the credit market behavior of investors towards entrant firms. We find that in order to deter entry, the claims held on incumbent firms should be sufficiently risky, i.e. equity, in contrast to the standard BranderLewis (1986) result that debt deters entry. The model sheds light on the policy debate on the separation of banking as to whether banks should be permitted to hold equity in firms. It also provides an explanation for why venture capitalists hold automatically convertible securities in start-up firms.

This paper provides evidence that incumbent and entrant firms' access to business group deep pockets affects entry patterns in product markets. Relying on a unique French data set on business groups, this paper shows that entry in manufacturing industries is negatively related to the cash hoarded by incumbent-affliated groups, and positively related to entrant groups' cash. In line with theoretical predictions, we find that the impact on entry of group cash holdings is more important in environments where financial constraints are pronounced and in more financially dependent sectors. The cash holdings of incumbent and entrant groups also affect the survival rate of entrants in the 3 to 5 year post-entry window. Overall, our findings suggest that internal capital markets operate within corporate groups and affect the product market behavior of affliated firms by mitigating financial constraints.

We provide evidence suggesting that incumbents’ access to group deep pockets has a negative impact on entry in product markets. Relying on a unique French data set on business groups, our paper presents three major findings. First, the amount of cash holdings owned by incumbent-affiliated groups is negatively related to entry in a market. Second, the impact on entry of group deep pockets is more important in markets where access to external funding is likely to be more difficult. Third, the “entry deterring effect” of group deep pockets is more pronounced when groups have more active internal capital markets. Our findings suggest that internal capital markets operate within corporate groups and that they have a potential anti-competitive effect.

We argue that the process whereby a venture capital syndicate is formed is characterized by two-sided asymmetric information, as the profitability signals held by different VCs are non-verifiable and manipulable. We analyze how an appropriate design of the syndicating VCs' cash-flow rights can induce them to truthfully reveal their signals to each other, and analyze how the incentive costs of syndication vary with the VCs' expertise in evaluating entrepreneurial projects. We then address the question of how lead venture capitalists should choose their syndication partners. Our findings suggest that lead VCs should not syndicate with very experienced partners, and that more experienced venture capitalists should select more experienced partners.

When stakeholder protection is left to the voluntary initiative of managers, relations with social activists may become an effective entrenchment strategy for inefficient CEOs. We thus argue that managerial turnover and firm value are increased when explicit stakeholder protection is introduced so as to deprive incumbent CEOs of activists’ support. This finding provides a rationale for the emergence of specialized institutions (social auditors and ethic indexes) that help firms commit to stakeholder protection even in case of managerial replacement. Our theory also explains a recent trend whereby social activist organizations and institutional shareholders are showing a growing support for each others’ agenda

When stakeholder protection is left to the voluntary initiative of managers, relations with social activists may become an effective entrenchment strategy for inefficient CEOs. We thus argue that managerial turnover and firm value are increased when explicit stakeholder protection is introduced so as to deprive incumbent CEOs of activists' support. This finding provides a rationale for the emergence of specialized institutions (social auditors and ethic indexes) that help firms commit to stakeholder protection even in case of managerial replacement. Our theory also explains a recent trend whereby social activist organizations and institutional shareholders are showing a growing support for each others' agenda.

We argue that when stakeholder protection is left to the voluntary initiative of managers, concessions to social activists and pressure groups can turn into a self-entrenchment strategy for incumbent CEOs. Stakeholders other than shareholders thus benefit from corporate governance rules putting managers under a tough replacement threat. We show that a minimal amount of formal stakeholder protection, or the introduction of explicit covenants protecting stakeholder rights in the firm charter, may deprive CEOs of the alliance with powerful social activists, thus increasing managerial turnover and shareholder value. These results rationalize a recent trend whereby well-known social activists like Friends of the Earth and active shareholders like CalPERS are showing a growing support for each other’s agendas.

When stakeholder protection is left to the voluntary initiative of managers, relations with social activists may become an effective entrenchment strategy for inefficient CEOs. We thus argue that managerial turnover and firm value are increased by the institutionalization of stakeholder protection depriving incumbent CEOs of activists' support. This finding provides a rationale for the emergence of specialized institutions (social auditors and ethic indexes) that help firms commit to stakeholder protection even in case of managerial replacement. Our theory also explains a recent trend whereby social activist organizations and institutional shareholders are showing a growing support for each others' agenda.

We show that in business groups with efficient internal capital markets both winner-picking and cross-subsidization may occur. Depending on the amount of internal resources, a group may either exit a market in response to increased competition, or rather channel funds to the subsidiary operating in that market. This has important implications for the strategic impact of group membership. Affiliation to a monopolistic subsidiary can make a cash-rich stand-alone firm more vulnerable to entry deterrence. Conversely, a cash-poor firm becomes less sensitive to its financial constraints upon affiliation to a group, and thus less vulnerable to entry deterrence. Finally, resource flexibility within a group makes subsidiaries' reaction functions flatter, thus discouraging rivals' strategic commitments when entry is accommodated.

This Paper presents the first model where entry deterrence takes place through financial rather than product-market channels. In standard models of the interaction between product and financial markets, a firm's use of financial instruments deters entry by affecting product market behaviour, whereas in our model entry deterrence occurs by affecting the credit market behaviour of investors towards entrant firms. We find that in order to deter entry, the claims held on incumbent firms should be sufficiently risky, ie equity, in contrast to the standard Brander-Lewis (1986) result that debt deters entry. We show that this effect is more marked, the less competitive is the credit market, implying that more credit market competition spurs more product market competition. The model can be used to shed light on the mode of financing of start-up industries and the policy debate on the separation of banking as to whether banks should be permitted to hold equity in firms.