We examine the predictability of stock returns using implied volatility spreads (VS) from individual (non-index) options. Volatility spreads can occur under simple no-arbitrage conditions for American options when volatility is time-varying, suggesting that the VS-return predictability could be...

In contrast to prior equity market results, we document that corporate bonds issued by low profitability firms outperform bonds issued by highly profitable firms. This performance difference is primarily driven by low profitability, low credit rating firms. This profitability premium is...

We show theoretically that optimism can lead a risk-averse CEO to choose the first-best investment level that maximizes shareholder value. Optimism below (above) the interior optimum leads the CEO to underinvest (overinvest). Hence, if boards of directors act in the interests of shareholders,...

Corporate governance research indicates that corporate boards of directors may be overly beholden to management, which can be detrimental to firm value creation. Drawing upon agency theory and the governance law literature, we examine the effects of a new SEC rule designed to lessen managerial...

Extant research suggests that moderate CEO optimism can be beneficial to the firm. However, little is known about how boards of directors learn the effects of CEO optimism. Evidence from psychology indicates that individuals/groups may learn more from failure than success, while a simple...

We provide the first evidence of external labor market penalties when directors fail to align with shareholder preferences for monitoring executive compensation. When shareholders express disapproval through low Say-On-Pay (SOP) support, directors incur significant external penalties, including...

Initial public offering (IPO) underpricing is positively correlated with managerial confidence. We hypothesize that highly overconfident managers, who tend to overvalue their own firm, use underpricing to signal their beliefs to the market in an effort to receive greater value for their shares...

We provide the first evidence of significant external labor market penalties when directors fail to properly oversee executive compensation. When shareholders express disapproval through low Say-On-Pay (SOP) support, equity values decrease at firms linked by a shared director (interlocking...

We show analytically and empirically that the positive abnormal returns from Betting-Against-Beta (BAB) – a beta-neutral portfolio long in low beta stocks and short in high beta stocks – are consistent with market segmentation due to costly information acquisition, as in Merton (1987)....

We study the effect of changes in CEO inside debt on equity and debt values during the period in which firms' disclosure of inside debt increased. We predict optimal CEO relative debt-equity incentive ratios based on firm and CEO characteristics, and show that firms adjust their ratios towards...