Campbell, Hilscher, and Szilagyi (2008) show that firms with a high probability of default have abnormally low average future returns. We show that firms with a high potential for default (death) also tend to have a relatively high probability of extremely large (jackpot) payoffs. Consistent...

We study the exposure of the US corporate bond returns to liquidity shocks of stocks and Treasury bonds over the period 1973–2007 in a regime-switching model. In one regime, liquidity shocks have mostly insignificant effects on bond prices, whereas in another regime, a rise in illiquidity...

This paper develops a structural equilibrium model with intertemporal macroeconomic risk, incorporating the fact that firms are heterogeneous in their asset composition. Compared with firms that are mainly composed of invested assets, firms with growth options have higher costs of debt because...

In this paper I develop and empirically test a model that highlights how the correlation between cash flows and a source of aggregate risk affects a firm's optimal cash holding policy. In the model, riskier firms (i.e., firms with a higher correlation between cash flows and the aggregate shock)...

Hedge fund managers trade off the benefits of leveraging on the alpha-generating strategy against the costs of inefficient fund liquidation. In contrast to the standard risk-seeking intuition, even with a constant-return-to-scale alpha-generating strategy, a risk-neutral manager becomes...

Fama and French (2006) use the dividend-discount model to develop the role of expected profitability, expected investment, and the book-to-market ratio as predictors of stock returns. One reported empirical result is anomalous. The valuation model establishes that the comparative static relation...

We present the puzzling evidence that, from 1962 to 2009, an average 10.2% of large public nonfinancial US firms have zero debt and almost 22% have less than 5% book leverage ratio. Zero-leverage behavior is a persistent phenomenon. Dividend-paying zero-leverage firms pay substantially higher...

Using data from Securities and Exchange Commission filings, I show that the typical bank loan is renegotiated five times, or every nine months. The pricing, maturity, amount, and covenants are all significantly modified during each renegotiation, whose timing is governed by the financial health...

The fastest growing segment of private equity (PE) deals is secondary buyouts (SBOs)—sales from one PE fund to another. Using a comprehensive sample of leveraged buyouts, we investigate whether SBOs are value-maximizing, or reflect opportunistic behavior. To proxy for adverse incentives, we...

We investigate whether excess control rights of ultimate owners in pyramids affect banks׳ capital ratio adjustments. When control and cash flow rights are identical, to boost capital ratios banks issue equity without cutting lending. However, when control rights exceed cash flow rights, instead...