Tobin's q is often used to proxy for firm performance when studying the relation between corporate governance and firm performance. However, our theoretical and empirical analysis demonstrate that Tobin's q does not measure firm performance since underinvestment increases rather than decreases...

Campbell and Shiller’s “accounting identity” implies that the log dividend-price ratio (LDPR) predicts either returns or dividend growths, but neither is significantly predictable, a well-known puzzle. Existence of the long-term mean LDPR is an important assumption behind the accounting...

Hart proved the difficulty of deriving general comparative statics in portfolio weights. Instead, we derive new comparative statics for the distribution of payoffs: A is less risk averse than B iff A's payoff is always distributed as B's payoff plus a non-negative random variable plus...

The literature traditionally assumes that a portfolio manager who expends costly effort to generate information makes an unrestricted portfolio choice and is paid according to a sharing rule. However, the revelation principle provides a more efficient institution. If credible communication of...

Which is better for a small firm: debt financing or equity financing? A simple intertemporal model suggests that the two have very different potential incentive problems. With equity financing, the manager (an employee) may expend too little effort, while with debt financing, the manager (the...

We build a simple economic model of optimal casualty insurance based on a story about insuring a house. With endogenous repair and a securities market that is complete over states distinguished by security payoffs, we have three main findings in our base model with additively separable...

Disclosure by firms would seem to reduce the informational asymmetry that is a cause of investment inefficiency in firms. However, the effect of disclosure is subtle, especially when the link between disclosure and firm value is endogenous and depends on incentives within the firm. We analyze...

Retirement flexibility and inability to borrow against future labor income can significantly affect optimal consumption and investment. With voluntary retirement, there exists an optimal wealth-towage ratio threshold for retirement and human capital correlates negatively with the stock market...