We predict earnings for forecast horizons of up to five years by using the entire set of Compustat financial statement data as input and providing it to state-of-the-art machine learning models capable of approximating arbitrary functional forms. Our approach improves prediction one year ahead...

This study incorporates the overextrapolation belief into the classic real options model. Using the stochastic dynamic programming method, we obtain the semiclosed-form solutions for the optimal investment and valuation of real options and the welfare loss owing to overextrapolation. The...

Corporate bond ETFs provide stable funding to US companies, with pricing and real effects. ETF ownership reduces the yield spreads for bonds directly owned and for the other bonds of the same issuer. This lower cost of debt enables financially constrained firms to invest in risky projects....

We consider Merton's version of the Solow model Merton (1975), where capital per labor is assumed to follow the diffusion process: dk(t)=[sf(k(t))-(n lambda-sigma2)k(t)]dt sigmak(t)dW(t), with constant per capital savings rate s. Merton defined a golden rule in this context as one for which...

In capital budgeting, the internal rate of return (IRR) criterion and the net present value (NPV) criterion are considered incompatible in several cases. A longstanding debate developed in past years about the reliability of either method is still an issue of investigation (see, for example,...

This work presents a notion of residual income called Systemic Value Added (SVA). It is antithetic to Stewart's (1991) EVA, though it is consistent with it in overall terms: a project's Net Final Value (NFV) can be computed as the sum of capitalized EVAs or as the sum of uncapitalized SVAs. As a...

This paper proposes a new way of decomposing net present values and net final values in periodic shares. Such a decomposition generates a new notion of residual income, radically different from the classical one available in the financial and accounting literature. While the standard residual...

This paper deals with the CAPM-derived capital budgeting criterion, and in particular with Rubinstein's (1973) criterion, according to which a project is profitable if the project rate of return is greater than the risk-adjusted cost of capital, where the latter depends on the project's...

For one-period projects under certainty, the notion of Net Present Value (NPV) formally translates the notion of economic profit, where the discount rate is the cost of capital. Under uncertainty, the cost of capital is the expected rate of return of an equivalent-risk alternative that the...

This paper presents a new way of measuring residual income, originally introduced by Magni (2000a,b,c, 2001a,b, 2003). Contrary to the standard residual income, the capital charge is equal to the capital lost by investors. The lost capital may be viewed as (a) the foregone capital, (b) the...