GUEMBEL Alexander

We study a two-country setting in which leveraged investors generate fire-sale externalities, leading to financial crises and contagion. Governments can affect the incidence of financial crisis and the degree of contagion by injecting public liquidity and, additionally, by segmenting the countries' liquidity markets. We show that segmentation allows a country to avoid contagion and fend off mild financial crises caused by a small shock to its liquidity demand, at the cost of exposing it to more severe financial crises caused by a large shock. We derive a "pecking order" result, whereby segmentation is a second-best measure that coordinated governments should use only when tax capacity constrains them from injecting liquidity. Even when segmentation is welfare-enhancing, it should be applied to public liquidity alone, never restricting the free ow of private liquidity across countries. Uncoordinated governments tend to use segmentation excessively.

The French abstract was not provided by the author.

We analyze information production incentives for traders in financial markets, when firms condition investment decisions on information revealed through stock prices. We show that traders’ private value of information about a firm’s investment project increases with the ex ante likelihood the project will be undertaken. This generates an informational amplification effect of shocks to firm value. Information production by traders may exhibit strategic complementarities for projects that would not be undertaken in the absence of positive news from the stock market. A small decline in fundamentals can lead to a market breakdown where information production ceases, and investment and firm value collapse. Our theory sheds light on how productivity shocks are amplified over the business cycle.

This thesis consists of three chapters. Chapter 1 presents general information on stock options and summarizes the existing literature on stock option grants and exercises. Chapter 2 examines the exercise behavior of executives in the largest French companies. The results provide evidence of the use of private information to exercise options far from expiration. Chapter 3 examines the announcement of annual results and its relationship with the exercise decision of executives' stock options. The results of this chapter indicate that annual earnings are more likely to exceed analysts' forecasts when executives exercise their options close to expiration shortly after the announcements. The probability of positive earnings announcements is also higher when executives exercise their options and resell the resulting shares. The results also show the timing ability of executives. They accelerate earnings announcements when they have to exercise their options close to expiration, especially when they sell the resulting shares. Chapter 3 shows that executives use a higher level of discretionary Accruals when they have to exercise options at expiration.

This thesis contains three independent papers. The first two examine the informational role of stock prices and its impact on the real economy. The last one explores the relationship between incentive management and competition in the product market. In the first paper, two firms compete in a product market and have the opportunity to invest in a risky technology. A firm may choose to invest earlier or later, when stock prices reveal the value of the technology. Information leakage thus introduces a waiting option, which improves production efficiency. A potential leader may nevertheless be discouraged from investing early, when anticipating his competitor to invest later in response to good news. I show that increasing product market competition increases the value of the option to wait, but has an ambiguous effect on information production. It may therefore be that intense competition leads to more leakage so that no firm will invest, especially in a small market. Given a moderate level of competition, the informative price may improve investment outcomes when the profitability of the investment and the size of the market are relatively large. The second article examines the feedback effect of certifications on financial markets. A firm must decide whether to verify the inside of a potential investment prospect or to delegate this task to a certifier who reveals his valuations to outsiders. The investment decision is then made on the basis of all available market information. The information asymmetry between the firm and the lenders is mitigated by delegation, and thus the firm benefits from a lower cost of capital. Delegation, however, reduces the information advantage of speculators who make less effort to obtain information. This results in a potential "crowding-out" effect of information. We show that the firm may prefer to delegate when the a priori belief about the investment prospect is relatively high, and to choose internally to produce information when its own signal is more accurate and when its current assets in place generate a higher expected payoff. The third paper considers a model of spatial competition with horizontal and vertical differentiation. Two firms are assigned to exogenous locations on a circular city. Consumers, distributed over the circle, must pay a transportation fee to purchase. Anticipating a future uncertainty in product quality, the firms simultaneously offer incentive contracts to managers to induce an optimal level of effort. I show that competition can negatively affect incentives, such as a lower transportation cost affects the firm's local market power and reduces a firm's marginal profit from producing a high quality product, especially when its competitor also produces a high quality product. On the other hand, greater competition reduces a firm's profit if it fails to improve product quality. This effect increases the optimal level of effort, and it becomes dominant if the quality improvement is relatively large compared to the cost of the effort. In addition, a large decrease in the cost of transportation can change the market structure, so that the firm with better quality goods attracts all the demand, and thus the positive effect of competition on management activity becomes more important.

We demonstrate an inherent conflict between ex ante efficient monitoring and liquidation decisions by outside claimholders. We show it can be useful to commit to inefficient liquidation when monitors fail to produce information: this provides stronger incentives to monitor. The implication for firm capital structure is that more information is generated about firm prospects – and hence firm value increases – when a firm’s cash flow is split into a ‘safe’ claim (debt) and a ‘risky’ claim (equity) compared to when a single claim is sold. We also derive the optimal allocation of control rights between safe and risky claims. This partially resolves the Tirole (2001) puzzle as to why firms issue multiple securities that generate ex post conflicts of interest.