Following surprise independent director departures, affected firms have worse stock and operating performance, are more likely to restate earnings, face shareholder litigation, suffer from an extreme negative return event, and make worse mergers and acquisitions. The announcement returns to...

Polytope Fraud Theory (PFT) extends the existing triangle and diamond theories of accounting fraud with ten abnormal financial practice alarms that a fraudulent firm might trigger. These warning signals are identified through evaluation of the shorting behavior of sophisticated activist short...

Using comprehensive data on London Interbank Offer Rate (Libor) submissions from 2001 through 2012, we document systematic evidence consistent with banks manipulating Libor to profit from Libor related positions and, to a degree, to signal their creditworthiness during the distressed times for...

A common method of valuing the equity in highly leveraged transactions is the flows-to-equity method. When applying this method various formulas can be used to calculate the time-varying cost of equity. In this paper we show that some commonly used formulas are inconsistent with the assumptions...

This paper proposes a machine learning approach to estimate physical forward default intensities. Default probabilities are computed using artificial neural networks to estimate the intensities of the inhomogeneous Poisson processes governing default process. The major contribution to previous...

The aim of this paper is to study the impact of the bankruptcy law on financing, investment, default and liquidation decisions of firms. We build a model in which the firm has the opportunity to get into debt to finance an investment whose return is stochastic. Shareholders and bondholders...

We analyze portfolio credit risk in light of dynamic quot;frailty,quot; by which the credit qualities of different firms depend on common unobservable time-varying default covariates. Frailty is estimated to have a large impact on estimated conditional mean default rates, above and beyond those...

We develop a model of investment, payout, and financing policies in which firms face uncertainty regarding their ability to raise funds and have to search for investors when in need of capital. We show that capital supply uncertainty leads firms to value financial slack and to adjust their...

Return anomalies are most pronounced among distressed stocks. We attribute this finding to the role of misvaluation and investors' inability to value distressed stocks correctly. We treat distressed stocks as options and construct a valuation model that explicitly takes into account the value of...

We argue that the prospect of an imperfect enforcement of debt contracts in default reduces shareholder-debtholder conflicts and induces leveraged firms to invest more and take on less risk as they approach financial distress. To test these predictions, we use a large panel of firms in 41...