We consider the effect of hedging with foreign currency derivatives on Brazilian firms in the period 1997 through 2004, a period that includes the Brazilian currency crisis of 1999. We find that, derivative users have valuations that are higher than non-user firms. Hedging with currency...

We adapt structural models of default risk to take into account the special nature of bank assets. The usual assumption of log-normally distributed asset values is not appropriate for banks. Typical bank assets are risky debt claims, which implies that they embed a short put option on the...

This paper extends the current theoretical models of corporate risk-management in the presence of financial distress costs and tests the model's predictions using a comprehensive dataset. I show that the shareholders optimally engage in ex-post (i.e., after the debt issuance) risk-management...

We find a positive cross-sectional relationship between expected stock returns and default risk, contrary to the negative relationship estimated by prior studies. Whereas prior studies use noisy ex post realized returns to estimate expected returns, we use ex ante estimates based on the implied...

We provide causal evidence that adverse capital shocks to banks affect their borrowers' performance negatively. We use an exogenous shock to the U.S. banking system during the Russian crisis of Fall 1998 to separate the effect of borrowers' demand of credit from the supply of credit by the...

We analyze the effects of managerial incentive, monitoring, firm characteristics and market-timing on floating-to-fixed rate debt structure of firms. We find that the CFO's (not CEO's) incentive has a strong influence on a firm's debt structure. When CFOs have incentives to increase (decrease)...

We investigate whether short sellers contribute towards informational efficiency of market prices by trading on their private information or destabilize market prices by trading on rumors and false information. We do so by projecting a firm's short-selling activities on contemporaneous trading...

This paper studies the valuation of initial public offerings (IPO) using comparable firm multiples. In a sample of more than 2000 IPOs from 1980 to 1997, we find that the median IPO is overvalued at the offer by about 50% relative to its industry peers. This overvaluation is robust over time,...

An originate-to-distribute (OTD) model of lending, where the originator of a loan sells it to various third parties, was a popular method of mortgage lending before the onset of the subprime mortgage crisis. We show that banks with high involvement in the OTD market during the pre-crisis period...

Despite plenty of anecdotal evidence of hidden losses in banks, there is no systematic study analyzing the economic drivers of this behavior: we simply do not get to observe what banks are hiding unless they are caught. Using a regulatory change in India that forced all commercial banks to...