ABSTRACT We find that the majority of variation in leverage ratios is driven by an unobserved time‐invariant effect generates surprisingly stable capital structures: High (low) levered firms tend to remain as such for over two decades. This feature largely unexplained previously identified determinants, robust firm exit, and present prior IPO, suggesting structures primarily determined factors long periods time. then show these results have important implications empirical analysis...

ABSTRACT We use a sample of 800 firms in eight East Asian countries to study the effect ownership structure on value during region's financial crisis. The crisis negatively impacted firms' investment opportunities, raising incentives controlling shareholders expropriate minority investors. Crisis period stock returns which managers have high levels control rights, but separated their and cash flow ownership, are 10–20 percentage points lower than those other firms. evidence is consistent...

We explore the time-series relationship between investor sentiment and small-stock premium using consumer confidence as a measure of optimism. estimate components related to economic fundamentals sentiment. After controlling for time variation beta, we study pricing error with Over last 25 years, measured forecasts returns small stocks low institutional ownership in manner consistent predictions models based on noise-trader Sentiment does not appear forecast value momentum premiums. (JEL...

ABSTRACT This paper examines the relationship between book‐to‐market equity, distress risk, and stock returns. Among firms with highest risk as proxied by Ohlson's (1980) O‐score, difference in returns high low book‐to market securities is more than twice large that other firms. return differential cannot be explained three‐factor model or differences economic fundamentals. Consistent mispricing arguments, exhibit largest reversals around earnings announcements, effect small analyst coverage.

ABSTRACT We analyze several hundred firms that expand via acquisition and/or increase their number of business segments. The combined market reaction to announcements is positive but acquiring firm excess values decline after the diversifying event. Much value reduction occurs because our sample acquire already discounted units, and not destroys value. This implies standard assumption conglomerate divisions can be benchmarked typical stand‐alone should carefully reconsidered. also show does...

ABSTRACT Spot power prices are volatile and since electricity cannot be economically stored, familiar arbitrage‐based methods not applicable for pricing derivative contracts. This paper presents an equilibrium model implying that the forward price is a downward biased predictor of future spot if expected demand low risk moderate. However, premium increases when either or variance high, because positive skewness in distribution. Preliminary empirical evidence indicates greatest during summer months.

Abstract We examine how shocks to the supply of credit impact corporate financing and investment using collapse Drexel Burnham Lambert, Inc.; passage Financial Institutions Reform, Recovery, Enforcement Act 1989; regulatory changes in insurance industry as an exogenous contraction below-investment-grade after 1989. A difference-in-differences empirical strategy reveals that substitution bank debt alternative sources capital (e.g., equity, cash balances, trade credit) was limited, leading...

We provide evidence that corporate tax status is endogenous to financing decisions, which induces a spurious relation between measures of financial policy and many commonly used proxies. Using forward‐looking estimate before‐financing marginal rates, we document negative operating leases positive debt levels rates. This the first unambiguous supporting hypothesis low rate firms lease more, have lower levels, than high firms.

Abstract We examine the impact of explicitly incorporating a measure debt capacity in recent tests competing theories capital structure. Our main results are that if external funds required, absence concerns, appears to be preferred equity. Concerns over largely explain use new equity financing by publicly traded firms. Finally, we present evidence reconciles frequent issues small, high-growth firms with pecking order. After accounting for capacity, order theory give good description...

We examine the role of board connections in explaining how controversial practice backdating employee stock options spread to a large number firms across wide range industries. The increase likelihood that firm begins backdate can be explained by having member who is interlocked previously identified approximately one-third unconditional probability our sample. Our analysis provides new insight into boards function and...

Public firms that place equity privately experience positive announcements effects, with negative post‐announcement stock‐price performance. This finding is inconsistent the underreaction hypothesis. Instead, it suggests investors are overoptimistic about prospects of issuing equity, regardless method issuance. Further, in contrast to public offerings, private issues follow periods relatively poor operating Thus, investor overoptimism at time not due behavioral tendency overweight recent...

Both theory and empirical evidence suggest that managers’ career concerns can serve as an important source of implicit economic incentives. We examine how incentives for political promotion are related to compensation policy firm performance in Chinese state-owned enterprises. find the likelihood CEO receives a is positively performance. also CEOs with higher have lower pay levels pay–performance sensitivity. Overall, suggests competition job market helps mitigate weak monetary China. Data...

We study the effect of ownership structure on firm value during East Asian financial crisis that began in July 1997. The represents a negative shock to investment opportunities firms these markets raises incentives controlling shareholders expropriate minority shareholders. Moreover, large separation between cash flow and control rights often arise from use pyramidal structures cross-holdings suggests insiders have both incentive ability engage expropriation. Using data over 800 eight...

The impact of debt capacity on recent tests competing theories capital structure is examined. Controlling for capacity, the pecking order appears to be a good description financing policies large sample firms. main results are first, that internally generated funds appear preferred source financing. Second, if external required, in absence concerns, equity and, when possible, "stockpiled." Demonstration this preference also provides evidence directly contradictory tradeoff theory. Finally,...

We examine the evolution of corporate capital structures and find that little variation in leverage is captured by previously identified determinants, such as size, market-to-book, profitability, industry, etc. Instead, majority ratios driven an unobserved time-invariant effect generates surprisingly stable structures: High (low) levered firms tend to remain for over two decades. Additionally, this feature robust firm exit, present prior IPO, largely unaffected process going public,...

We empirically investigate whether corporate governance structure is different between focused and diversified firms, any differences in are associated with the value loss from diversification. find that, relative to CEOs firms have lower stock ownership pay-for-performance sensitivities. Diversified companies, however, more outside directors, no difference independent block-holdings, sensitivity of CEO turnover performance similar that single-segment firms. Moreover, we compelling evidence...

Zero-cost collars and equity swaps provide insiders with the opportunity to hedge risk associated their personal holdings in company's equity. Consequently, use has important implications for incentive-based contracting understanding insider trading behavior. Our analysis indicates that these transactions generally involve high-ranking effectively reduce ownership by about 25%, on average. Given potential of financial instruments substantially alter incentive alignment between managers...