This article develops a theory of mergers and divestitures. The motivation stems from inability to finance marginally profitable projects as stand-alones due to agency problems. A conglomerate merger is a technology that allows these projects to survive a period of distress. If profitability...

This article studies how collateral affects bond yields. Using a large data set of public bonds, we document that collateralized debt has higher yield than general debt, after controlling for credit rating. Our model of agency problems between managers and claim holders explains this puzzling...