We investigate the cost of capital in a model with an agency conflict between inside managers and outside shareholders. Inside ownership reflects the classic tradeoff between incentives and risk diversification, and the severity of agency costs depends on a parameter representing investor...

This paper studies optimal debt maturity in an economy with repayment enforcement frictions and investors disagree about repayment probabilities. The optimal debt maturity choice is a mix of long- and short-term debt securities. Spreading risky debt claims on cash flows over time allows debt to...

The Republic of Serbia is characterized by an unsatisfactory macroeconomic environment. Under the conditions of an evident shortage of liquid assets, the financial capital has moved from real to the financial sector, which led companies to over-indebtedness and shutdown of their own capacities....

The interaction of capital and risk for trading and treasury units is of primary interest in the corporate governance of banks as it links operational profitability and strategic risk management. During the financial crisis, several banks' trading units suffered significantly higher losses than...

I provide evidence that covenants in bond indentures affect the firm's investment policy outside of covenant violations. Using a large dataset of public bonds, and controlling for the self-selectivity of covenant inclusion, I find that bonds with investment (financing) restrictions are...

Does policy uncertainty affect productivity? Policy uncertainty creates delays as firms await new information about prices, costs and other market conditions before committing resources. Such delays can have real consequences on firms’ productivity and corporate decisions. First, we find that...

Q-theory predicts that investment frictions steepen the relation between expected returns and firm investment. Using financing constraints to proxy for investment frictions, we document only weak evidence that the investment-to-assets and asset growth effects in the cross-section of returns are...

We investigate the cost of capital in a model with an agency conflict between inside managers and outside shareholders. Inside ownership reflects the classic tradeoff between incentives and risk diversification, and the severity of agency costs depends on a parameter representing investor...

We question a deep-ingrained doctrine in asset pricing: if an empirical characteristic-return relation is consistent with investor “rationality,” the relation must be “explained” by a risk factor model. The investment approach changes the big picture of asset pricing. Factors formed on...