There is anecdotal evidence that the primary reason why managers hold cash on their balance sheets is to cover operating losses (operating shortfalls). In this paper, we rationalize this as an optimal response in a world with contract heterogeneity. Specifically, we relax the standard assumption...

Start-ups mostly have only limited internal financing. Post-entry performance should thus strongly depend on the availability of new external capital. In this study we analyze the impact of financial constraints on the performance of Swiss start-ups. Since we use cohort data, we have for some...

Compelling empirical evidence documenting a material effect of corporate taxes on leverage decisions is limited, in part because of difficulties in constructing an effective proxy for the firm's tax benefit of debt. We examine leverage decisions across taxable and nontaxable real estate firms...

This paper examines the effect of accounting conservatism on firm-level investment during the 2007-2008 global financial crisis. Using a differences-in-differences design, we find that firms with less conservative financial reporting experienced a sharper decline in investment activity following...

For nearly two years, the two of us have had a running discussion of the costs and benefits of automatic stays in bankruptcy for qualified financial contracts (QFCs) such as derivatives and repurchase agreements, particularly those held by systemically important major dealer banks. Under current...

This paper explores the impact of target CEOs' retirement preferences on takeovers. Using retirement age as proxy for CEOs' private merger costs, we find strong evidence that target CEOs' preferences affect merger activity. The likelihood of receiving a successful takeover bid is sharply higher...

This paper examines how different types of interactions with U.S. markets by non-U.S. firms are associated with higher level of CEO pay, greater emphasis on incentive-based compensation, and smaller pay gap with U.S. firms. Using a sample of CEOs of U.K. firms and using both broad...

Countries pursuing economic development confront a fundamental obstacle. Reforms that increase the size of the overall pie are blocked by powerful interests that are threatened by the growth-inducing changes. This problem is conspicuous in efforts to create effective capital markets to support...

Managers often claim that an important source of value in acquisitions is the acquiring firm's ability to finance investments for the target firm. This claim implies that targets are financially constrained prior to being acquired and that these constraints are eased following the acquisition....

We document the consequences of money market fund risk taking during the European sovereign debt crisis. Using a novel data set of security-level holdings of prime money market funds, we show that funds with large exposures to risky Eurozone banks suffered significant outflows between June and...