We find that equity mispricing impacts the speed at which firms adjust to their target leverage and does so in predictable ways depending on whether the firm is over- or underlevered. For example, firms that are above their target leverage and should therefore issue equity (or retire debt),...

Standard factor pricing models do not capture well the common time-series or cross-sectional variation in average returns of financial stocks. We propose a five-factor asset pricing model that complements the standard Fama and French (1993) three-factor model with a financial sector ROE factor...

Models based on asymmetric information predict that debt is least sensitive to private information and cannot explain the illiquidity of corporate debt in secondary markets. We analyze security design with moral hazard and offer a new explanation. First, the optimal compensation contract creates...

Using a large panel of UK public firms, we examine the relationship between the financial risk hedging and the cost of equity capital. We hypothesize that firms utilizing financial derivative instruments reduce the stock return volatility which is priced in investors’ expectations. While...

We study the prices of a firm's debt and equity in a market where investors have private information and may exhibit differences of opinion. We show how debt and equity valuations, and the impact of public information and distress risk on these valuations, depend upon disagreement and the...

From the bottom in March 2009, developed stock exchanges returned to their levels before the crises, which were not the case with the Macedonian, and the other SEE Stock Exchanges. Thus, in this paper we explain some of the reasons for this stagnant situation through analysis of Macedonian...

The paper investigates the impact of capital structure and information asymmetry on the value of companies listed on the Warsaw Stock Exchange. The study was conducted using the ordinary least squares (OLS) method on a sample of 273 companies in 2017 and the GMM dynamic paneldata approach with...

This paper studies strategic behavior in product markets with asymmetric information. A real options model is developed to investigate information revelation and signaling role capital structure. Information revelation is ensured through a learning mechanism that stems from the real options...