In this paper, we present a simple general equilibrium model of the portfolio behavior of households and institutions, paying particular attention to the influence of differences in tax rates and attitudes toward risk. Under the plausible assumptions that households are more risk averse than...

We introduce a method for measuring the quality of financial decisions built around a notion of financial competence, which gauges the alignment between consumers choices and those they would make if they properly understood their opportunities. We prove our measure admits a formal welfare...

A model of corporate financial policy (debt-equity ratios and dividend payout rates) is included in the Harberger general equilibrium model of incidence of the corporate income tax. Illustrative calculations of the distortions of financial policy and increases in risk premiums induced by the...

An increasing fraction of firms worldwide operate in multiple countries. We study the costs and benefits of being multinational in firms' corporate financial decisions and survey the related academic evidence. We document that, among U.S. publicly traded firms, the prevalence of multinationals...

This paper develops a simple model of corporate financial structure intended to formalize the macroeconomic concern over excessive leverage. In particular, we attempt to rationalize why firms designing an optimal capital structure would choose a level of debt that leaves them heavily exposed to...

This paper develops a general framework for analyzing corporate risk management policies. We begin by observing that if external sources of finance are more costly to corporations than internally generated funds, there will typically be a benefit to hedging: hedging adds value to the extent that...

We develop a model that shows how rent-seeking behavior on the part of division managers can subvert the workings of an internal capital market. In an effort to stop rent-seeking, corporate headquarters will be effectively forced into paying bribes to some division managers. And because...

Behavioral Corporate Finance provides new and testable explanations for long-standing corporate-finance puzzles by applying insights from psychology to the behavior of investors, managers, and third parties (e. g., analysts or bankers). This chapter gives an overview of the three leading streams...

The nature of the firm and its financing are closely interlinked. To produce significant net present value, an entrepreneur has to transform her enterprise into one that is differentiated from the ordinary. To achieve the control that will allow her to execute this strategy, she needs to have...