Historical time-series data is short relative to the frequency of political and economic crises. This makes it difficult to use pure time-series methods to identify the impacts of safe haven demand on asset prices, in the face of confounding effects from a wide range of alternative drivers. We...

The estimation of dynamic no-arbitrage term structure models with a flexible specification of the market price of risk is beset by a severe small-sample problem arising from the highly persistent nature of interest rates. We propose using survey forecasts of a short-term interest rate as an...

This paper empirically analyses the determinants of an initial public offering (IPO) and the consequences of this decision on a company's investment and financial policy. We compare both the ex-ante and the ex-post characteristics of IPOs with those of a large sample of privately held companies...

We focus on an exogenous event that changes the cost of capital of a company – the addition of its stock to the S&P 500 index – and investigate how companies react to it by modifying their corporate financial and investment policies. This allows us to test capital structure theories in an...

This Paper analyses firms’ capital allocation decisions when optimal capital structure is linked to the risk of underlying assets and when equity capital is costly and cannot be raised instantaneously. In the model, division managers receive private information and authority is delegated to...

This Paper analyses corporate bond valuation and optimal call and default rules when interest rates and firm value are stochastic. It then uses the results to explain the dynamics of hedging. Bankruptcy rules are important determinants of corporate bond sensitivity to interest rates and firm...

Corporations in many countries are run by controlling shareholders whose cash flow rights in the firm are substantially smaller than their control rights. This separation of ownership and control allows the controlling shareholders to pursue private benefits at the cost of minority investors by...

This paper derives a tax-adjusted discount rate formula with a constant proportion leverage policy, investor taxes, and risky debt. The result depends on an assumption about the treatment of tax losses in default. We identify the assumption that justifies the textbook approach of discounting...

We investigate the timing and the valuation of strategic investment aimed at enhancing entry opportunities in related market segments. As demand is uncertain, entry options should be exercised at the optimal time, trading off the market share gain against the option to wait until more...

This Paper studies equilibrium asset pricing with liquidity risk (the risk arising from unpredictable changes in liquidity over time). It is shown that the required return on a security depends on its expected illiquidity, the covariances of its own return, illiquidity with market return, and...