One of the central themes in corporate finance concerns the benefits of coordination and the consequences of coordination failures. Such trade-offs influence many important aspects of corporate decision-making, such as the failure of firms, incentives to engage in activism, and the compensation of senior executives. A key channel through which they operate is the underlying contractual setting confronting firms.

For example, two of the papers in this issue address trade-offs involving the failure of firms. “Filing for Bankruptcy Early Can Keep a Firm Alive Longer” highlights the incentive for creditors to run and how automatic stay provisions after a bankruptcy filing, as well as clawback provisions, influence decisions prior to bankruptcy. The automatic stay increases the post-bankruptcy payoff to discourage running prior to bankruptcy, while clawback provisions also weaken the incentive to run. Hence, bankruptcy rules can affect the timing of bankruptcy. “The Hidden Logic of Letting Firms Fail” focuses on the fire-sale externality among banks and how reorganization affects others. Whether one should encourage liquidation or, alternatively, discourage it—as illustrated by the eviction moratorium that arose during COVID-19—depends upon the health of the banks. There can be competing externalities in a crisis due to differences in bank collateral constraints. Under some conditions, liquidation should be subsidized, while under others it should be taxed.

“Leader-Follower Dynamics in Shareholder Activism” examines situations in which there is “wolf pack activism,” in which blockholders coordinate actions tacitly. A larger stake held by one activist can incentivize other holders to accumulate additional shares, even without explicit coordination. Finally, “Too Much, Too Soon, for Too Long: Why Competition Alone Cannot Fix CEO Pay” examines how the market for executive compensation can systematically produce overcompensation due to spillovers related to punishment in the marketplace. This suggests a rationale for noncompete clauses that restrict an executive’s outside option.