Empirical methods in corporate finance for some time focused on the short-term market reaction to corporate announcements. The associated theories rely heavily on market imperfections such as taxes, transaction costs, information issues and contracting problems to obtain short-term market...

This paper studies the role of leasing of productive assets. When capital is leased (or rented), it is more easily repossessed and hence leasing has higher debt capacity and relaxes financing constraints. However, leasing gives rise to an agency problem with regard to the care with which the...

This paper presents a continuous time model of a firm that can dynamically adjust both its capital structure and its investment choices. The model extends the existing literature by endogenizing the investment choice as well as firm value, which are both determined by an exogenous price process...

This paper evaluates quantitatively the macroeconomic implications of corporate governance institutions within a model where the size and distribution of firms and the structure of financial markets are jointly determined. If firms adapt their financing modes to economic conditions, aggregate...

Entrepreneurs often face undiversifiable idiosyncratic risks from their business investments. Motivated by this observation, we extend the standard real options approach to investment to an incomplete markets environment and analyze the joint decisions of business investments, consumption-saving...

We develop a structural model of the leverage choices of risk-averse managers who are compensated with cash and stock. We further characterize credit spread dynamics over the life of the debt. Managers optimally balance the tax benefits of debt with the utility cost that results from their...

How are foreign direct investment (FDI) flows and patterns of multinational firm (MNC) activity determined in a world with frictions in financial contracting and variations in institutional environments? As developers of technologies, MNCs have long been characterized as having comparative...

We develop a dynamic model with endogenous choice of leverage, distributions, and real investment in the presence of a graduated corporate income tax, individual taxes on interest and corporate distributions, costs of financial distress, and equity flotation costs. The dynamic trade-off...

This paper develops a new framework that combines agency problems associated with managerial behavior and firm finance in a dynamic macroeconomic model. Agency costs arise because neither the shareholders nor the debt provider can directly control the manager's choice of how much risk to assume,...