In Rethinking Corporate Governance for a Bondholder Financed, Systemically Risky World, I re-envision, for systemically important firms, the shareholder-primacy model of corporate governance. The Federal Reserve recently acknowledged that shareholder primacy lacks sufficient incentives for those firms to take precautions against their own failures. I argue that including bondholders in their governance not only could help to reduce systemic risk but also is merited by crucial changes in the bond markets.
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