This paper presents a framework for analyzing the costs and benefits of internal vs. external capital allocation. We focus primarily on comparing an internal capital market to bank lending. While both represent centralized forms of financing, in the former case the financing is owner-provided,...

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 review the recent literature on the financing of innovation, inclusive of large companies and new startups. This research strand has been very active over the past five years, generating important new findings, questioning some long-held beliefs, and creating its own puzzles. Our review...

We document that the risks and pre-fee returns of broad hedge fund indices can be accurately matched with simple equity index put writing strategies, which provide monthly liquidity and complete transparency over their state-contingent payoff profiles. This nonlinear risk exposure combines with...

Assessing the extent to which agents or firms face capital-market imperfections and quantity restrictions on credit is crucial for measuring intertemporal tradeoffs in consumption or the cost of capital for investment. In contrast to standard price-clearing, quot;full-informationquot; models of...

This paper estimates the micro-level costs of adjusting capital using detailed data onquot; investment decisions in the US airline industry. The data include the capital stock retirement, market values, operating costs, and utilization rates of 16 different types of capitalquot; goods for each...

A number of countries have delayed the opening of their capital markets to internationalquot; investment because of reservations about the impact of foreign speculators on both expectedquot; returns and market volatility. We propose a cross-sectional time-series model that attempts toquot;...

A key input to the capital budgeting process is the cost of capital. Financial managers most often use the CAPM for estimating the cost of capital for which they need to know the market risk premium. Textbooks advocate using the historical value for the U.S. equity premium as the market risk...