The cost of capital plays an important role in the allocation of resources among competing uses in a decentralized market system. The purpose of this paper is to organize and present what is known and what is hypothesized about the effects of taxation on the incentive to invest, via the cost of...

We show that measurable managerial characteristics have significant explanatory power for corporate financing decisions beyond traditional capital-structure determinants. First, managers who believe that their firm is undervalued view external financing as overpriced, especially equity. Such...

This paper investigates the relation between a firm's location and its corporate finance decisions. We develop a simple model where being located within an industry cluster increases opportunities to make acquisitions, and to facilitate those acquisitions, firms within clusters maintain more...

Many financing choices of US corporations remain puzzling even after accounting for standard determinants such as taxes, bankruptcy costs, and asymmetric information. We propose that managerial beliefs help to explain the remaining variation across and within firms, including variation in debt...

We use micro data from Orbis on firm level balance sheets and income statements to document that accounting returns for privately held businesses are dispersed, persistent, and negatively correlated with firm equity. We also show that firms experience large, fat-tailed, and partly transitory...

The financial behavior of corporations has changed greatly in the last ten years. Previously most of the cash that stockholders received from corporations took the form of dividends, and economists' models that have dividends as the ultimate determinant of equity values were not far off the...

This paper considers a firm that must issue common stock to raise cash to undertake a valuable investment opportunity. Management is assumed to know more about the firm's value than potential investors. Investors interpret the firm's actions rationally. An equilibrium model of the issue-invest...

Trends in the financing of the corporate sector have been widely discussed in both business and academic circles. It is frequently argued, for example, that corporations' use of debt financing has increased dramatically in recent years. These discussions have been hampered, however, by the lack...

We develop a q theory of investment with endogenous leverage, payout, hedging, and risk-taking dynamics. The key frictions are costly equity issuance and incomplete markets. We show that the marginal source of external financing on an on-going basis is debt. The firm lowers its debt when making...

The post-Global Financial Crisis period shows a surge in corporate leverage in emerging markets and a number of countries with deteriorated corporate financial fragility indicators (Altman's Z-score). Firm size plays a critical role in the relationship between leverage, firm fragility and...