ABSTRACT: This study examines whether and how earnings quality, measured as accruals quality (AQ), affects the cost of equity capital. Using two-stage cross-sectional regression tests, we find that AQ risk factor is significantly priced, after controlling for low-priced stocks. result robust in tests using individual stocks, various portfolio formations, different beta estimations. Furthermore, show its pricing effect systematically vary with business cycles macroeconomic variables. In...

We examine whether state laws impact the use of debt covenants by using a sample U.S. public bond issues from 1987 to 2004. consider variation in with respect minimum asset‐to‐debt ratio necessary for payout and antitakeover statutes. find that firms incorporated states stricter restrictions on distributions are less likely include constrain payouts, limit additional debt, or restrict sale assets. Thus, appear be substitute these covenants. On other hand, stronger statutes somewhat more This...

This paper investigates the impact of political uncertainty induced by U.S. gubernatorial elections on borrowing cost municipal bonds in past twenty years. We find that offering yields issued during election periods are six to eight basis points higher than non-election periods. Bonds states with an incumbent governor facing term limits or retirement associated additional three higher. To provide a scale for these results, average yield difference between investment-grade and...

This paper investigates the impact of political uncertainty induced by U.S. gubernatorial elections on borrowing cost municipal bonds in past twenty years. We find that offering yields issued during election periods are six to eight basis points higher than non-election periods. Bonds states with an incumbent governor facing term limits or retirement associated additional three higher. To provide a scale for these results, average yield difference between investment-grade and...

We construct a set of household-level background risk variables to capture the covariance structure three nonfinancial assets and two financial assets. These risks are in general statistically significant economically important for household's stock market participation stockholdings. A one-standard-deviation increase reduces probability by 11% stockholdings-to-wealth ratio 4%. The volatilities labor income, housing value, business income reduce household with highly correlated (bond)...

Abstract This study highlights the positive impact of a stock market listing on workplace safety. We find that injuries in publicly listed firms are lower than those comparable private firms, and this effect relates to heightened monitoring by media regulators. The pays more attention public firms’ safety issues reduced scrutiny due local newspaper closures leads greater increases firms. Regulators also monitor strictly, evidenced higher likelihood nonroutine inspections larger penalties for...

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This study examines whether and how earnings quality, measured as accruals quality (AQ), affects the cost of equity capital. Using two-stage cross-sectional regression tests, we find that AQ risk factor is significantly priced, after controlling for low-priced stocks. result robust in tests using individual stocks, various portfolio formations, different beta estimations. Furthermore, show its pricing effect systematically vary with business cycles macroeconomic variables. In particular,...

We examine how country-level legal and institutional investor protection shapes contractual creditor protection. Using debt covenant information for foreign bonds issued in the U.S., we find that of firms incorporated countries with stronger rights use fewer covenants. This finding suggests substitutes covenants reducing agency cost debt. In contrast, from shareholder more Similarly, firm-level corporate governance include contracts. These findings support view control may face an increase...

We construct a set of household-level background risk variables to capture the covariance structure three nonfinancial assets and two financial assets. These risks are in general statistically significant economically important for household's stock market participation holdings. A one standard deviation increase reduces probability by 11% holdings wealth ratio 4%. The volatilities labor income, housing value, business income reduce household with highly correlated (bond) returns is less...

Riskier firms use more covenants, yet effective covenants should reduce the probability of bankruptcy by restricting management’s actions. We disentangle these two relations between covenant and risk considering predicted actual use. find that is associated with a higher shorter firm survival, whereas lower longer survival. This evidence consistent notion reduces risk. However, theory suggests -- stock issuance restrictions rating decline puts do not bankruptcy. Empirically, we either...

This paper shows that bond market liquidity plays an important role in determining corporate debt contracts. We find bonds with better expected are issued fewer restrictive covenants, longer maturities, and lower offering yield spreads. These results robust to a quasi-natural experiment using the implementation of TRACE as exogenous shock liquidity, instrumental variable regression controlling for endogeneity liquidity. Further investigation effect is more pronounced firms subject credit...

We analyze how multinational firms reallocate real operations and debt across their affiliates in response to anti-tax avoidance policies. The UK introduced a worldwide cap 2010, generating quasi-natural experiment that limited interest deductibility for group of firms. find multinationals affected by the reform reduced amount held increased abroad. Affected reallocated share away from UK. Our findings provide causal evidence tax-motivated activity reallocation within show can circumvent tax...