I show that an asset pricing model for the equity claims of a value-maximizing firm can be constructed from its optimal financial contracting behavior. I study a dynamic contracting model in which firms trade off the costs and benefits of a given promise to pay external lenders in a specific...

Equity research analysts tend to cover firms about which they have favorable views. We exploit this tendency to infer analysts' preferences for corporate policies from their coverage decisions. We then use exogenous analyst disappearances to examine the effect of these preferences on corporate...

We consider an economy populated by CARA investors who trade, accounting for their price impact, multiple risky assets with arbitrary distributed payoffs. We propose a constructive solution method: finding the equilibrium reduces to solving a linear ordinary differential equation. With market...

This paper documents that underpriced firms substitute R&D spending with share buybacks to the detriment of innovation. To identify underpriced firms, I introduce a novel measure of non-fundamental price pressure induced by indirect exposure to industry-level shocks. This measure addresses...

Most firms face some form of competition in product markets. The degree of competition a firm faces feeds back into its cash flows and affects the values of the securities it issues. Through its effects on stock prices, product market competition affects the prices of options on equity and...

Making use of a structural model that allows for optimal liquidity management, we study the role that repos play in a bank's financing structure. In our model the bank's assets consist of illiquid loans and liquid reserves and are financed by a combination of repos, long–term debt, deposits...

We develop a dynamic tradeoff model to examine the importance of manager-shareholder conflicts in capital structure choice. Using panel data on leverage choices and the model's predictions for different statistical moments of leverage, we show that while refinancing costs help explain the...

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...

We want to assess the relationship between the equity and the debt cost of capital. Using a very simple dividend discount model we compute the implied discount rate and we compare it with the corresponding premium on the corporate credit default swap using a cointegration approach. We...

Unemployment insurance (UI) policies are implemented by many countries to lower individual income risk and to automatically stabilize macroeconomic fluctuations. To the extent that these policies are successful, however, they should be reducing precautionary savings and hence bank deposits –...