This paper analyzes the relation between agency conflicts and risk management in a contingent claims model of the firm. In contrast to previous contributions, our analysis incorporates not only stockholder-debtholder conflicts but also manager--stockholder conflicts. We show that the costs of...

This paper analyses interactions among investment policy, financial policies, and the market for corporate control. Both hedging and financing policies affect a firm's investment policy, thus changing costs of over- and under-investment. Both policies allow management to offer credible promises...

We examine explanations for corporate financing-, dividend-, and compensation-policy issues. We document robust empirical relations among corporate policy decisions and various firm characteristics. Our evidence suggests contracting theories are more important in explaining cross-sectional...

We examine 98 property-casualty insurance companies that convert to stock charter from a mutual or reciprocal form of organization. Our evidence shows converting firms have low surplus, significant growth in premium income, and draw down on their non-financial assets in years prior to...

I discuss the relation between corporate finance and organizational architecture. In a recent book, Managerial Economics and Organizational Architecture (2001), my co-authors Jim Brickley and Jerry Zimmerman and I provide a systematic framework for analyzing organizational problems and...

We examine choices of leverage and debt maturity, focusing on the impact of investment opportunity sets and regulatory environments. Using the mathematics of strategic complementarities, we derive conditions under which firms choose facets of capital structure that re monotonic in their...

We quantify the tax savings from hedging by modeling major provisions of the tax code. Using data from COMPUSTAT, we simulate likely tax savings from reducing the volatility of taxable income. The average tax savings from a 5 percent volatility reduction is $142,360 or about 3 percent of taxable...

We examine incentives to manage accounting information within 63 property-liability insurance company conversions from mutual ownership to common stock charter. In the process of conversion, policyholders' embedded equity claims must be valued. Since mutuals have no separately traded equity,...

We provide an empirical examination of the determinants of corporate debt maturity. Our evidence offers strong support for the contracting-cost hypothesis. Firms that have few growth options are large, or are regulated have more long-term debt in their capital structure. We find little evidence...

We model default risk in derivative contracts. Firms are less likely to default on derivatives than on corporate bonds because bonds are always liabilities, while derivatives can be assets. We provide an upper bound for default risk in derivatives, one substantially lower than appears to be...