This paper finds strong support for the argument that heterogeneous adjustment costs significantly affects the speed with which a firm approaches its target capital structure. We find that firms with higher non-debt tax shields (from R&D), and cash holdings adjust faster to their target capital...

Prior research has often taken the view that entrenched managers tend to avoid debt. Contrary to this view, we find that firms with entrenched managers, as measured by the Gompers et al. (2003) governance index, use more debt finance and have higher leverage ratios. To address the potential...

Permanent or long-term large shareholders have different governance incentives and mechanisms from institutional investors. Liquidity could facilitate either cutting and running by large shareholders or, alternatively, increased monitoring. Using an exogenous shock to liquidity in China, we...

Distressed firms and the banks that lend to these firms often have conflicting interests when going through the Chapter 11 process, freefall bankruptcy vs prepack bankruptcy. We examine whether common ownership, i.e., an institution with holdings in both the borrowing and the lending firms,...

This paper investigates how precautionary trading behavior of fund managers induced by a higher junior fee component in their compensation structure affects prices of downgraded loans in the leveraged loans market. Using detailed portfolio data from Collateralized Loan Obligation (CLO) funds, we...

We augment the LLSV creditor rights index with a new “restructuring index” that measures the incentives provided to creditors to grant concessions outside formal bankruptcy. We study the joint impact of the two indexes on a firm's leverage policy. We show that the two indexes have at most a...

We find that an increase in a firm's incentives to use trade secrets to protect its intellectual property results in a more actively managed capital structure. Exploiting U.S. states' adoption of the Uniform Trade Secrets Act as a positive “shock” in the protection afforded to trade secrets,...

We study the effects of country-level creditor protections on the firm-level choice of debt structure. Using data from 46 countries, we show that firms have more concentrated debt structures in countries with stronger creditor protection. Firms choose debt structure concentrations by trading-off...

Employment protection increases labor adjustment costs and hence the expected costs of financial distress for labor-intensive firms. It follows that these firms are likely to increase their cash holdings to reduce the risk of financial distress when employment protection is strengthened....