We investigate the leverage of hedge funds using both time-series and cross-sectional analysis. Hedge fund leverage is counter-cyclical to the leverage of listed financial intermediaries and decreases prior to the start of the financial crisis in mid-2007. Hedge fund leverage is lowest in early...

We analyze the optimal debt structure of multinational corporations choosing between centralized or decentralized borrowing. We identify how this choice is affected by creditor rights and bankruptcy costs, taking into account managerial incentives and coinsurance considerations. We find that...

We analyze a unique dataset from a survey of CFOs of diversified firms to examine four areas of diversification and internal capital markets: causes and financing effects of corporate diversification, capital budgeting processes, capital investment methods, and reallocation policies in internal...

This essay surveys the body of research that asks how the efficiency of corporate investment is influenced by problems of asymmetric information and agency. I organize the material around two basic questions. First, does the external capital market channel the right amount of money to each firm?...

In March 2021, the default of Archegos, a US family office, led to large losses for some global banks. Archegos was able to accumulate large exposures to and leverage on equities by entering into derivatives transactions with bank counterparties. When the price of the underlying stocks started...

In this paper we review the actual operational data of an anonymous Central European Bank, using two approaches described in the literature: the loss distribution approach and the extreme value theory (EVTʺ). Within the EVT analysis, two estimation methods were applied; the standard maximum...

We develop a model of the joint capital structure decisions of banks and their borrowers. Strikingly high bank leverage emerges naturally from the interplay between two sets of forces. First, seniority and diversification reduce bank asset volatility by an order of magnitude relative to that of...

This paper examines the impact of implicit guarantees and capital regulations on the behavior of a bank and on the expected losses for its depositors. I show that implicit guarantees increase the incentives of the bank to enhance leverage and/or risk taking and that this leads to higher expected...

In this paper, we evaluate firm-, industry- and country-specific factors determining a firm's capital structure. The empirical validity of several capital structure theories has been ambiguous so far. We shed light on the main drivers of leverage and depict differences in industry and country...

The correlation bias refers to the fact that claim subordination in the capital structure of the firm influences claim holders' preferred degree of asset correlation in portfolios held by the firm. Using the copula capital structure model, it is shown that the correlation bias shifts shareholder...