This paper presents a dynamic model of the firm with risk-free debt contracts, investment irreversibility, and debt restructuring costs. The model fits several stylized facts of corporate finance and asset pricing: First, book leverage is constant across different book-to-market portfolios,...

The rising stockpile of cash as a share of total assets at U.S. firms has intrigued economists since at least the paper of Bates, Kahle, and Stulz (2006), yet there has been relatively little work on where this cash has come from and how it is related to investment performance. We exploit...

Fama and French (1992) suggest that the positive value premium results from risk of financial distress. However, recent empirical research has found that financially distressed firms have lower stock returns, using empirical estimates of default probabilities. This paper reconciles the positive...

This paper models, and experimentally simulates, the free-rider problem in a takeover when the raider has the option to “resolicit,” that is, to make a new offer after an offer has been rejected. In theory, the option to resolicit, by lowering offer credibility, increases the dissipative...

We model experimentally the governance of an institution. The optimal management of this institution depends on the information possessed by insiders. However, insiders, whose interests are not aligned with the interests of the institution, may choose to use their information to further personal...

Private placement debt issues are more effective than public bonds in resolving information asymmetries and controlling moral hazard problems. Firms that issue only private placements (non-switchers) are found to have more information problems than firms that have access to the public bond...

Most studies of corporate investment assume perfect capital markets and ignore the influence of financing decisions on real investment. This paper explores whether capital market imperfections are helpful in explaining real corporate investment. I develop a variant of a q-theory model of...

In this paper we formulate and test a number of hypotheses regarding insurer participation and volume decisions in derivatives markets. Several specific hypotheses are supported by our analysis. We find evidence consistent with the idea that insurers are motivated to use financial derivatives to...