A firm's mix of growth options and assets in place is an important determinant of its optimal default strategy. Our simple model shows that shareholders of a firm with valuable investment opportunities would be able/willing to wait longer before defaulting on their contractual debt obligations...

In this paper we provide an investment-based explanation for the popularity of convertible debt. Speci fically, we demonstrate the ability of convertible debt to alleviate and potentially totally eliminate the underinvestment problem of Myers (1977). A conversion feature induces shareholders to...

We examine whether investors' biased ex-ante beliefs regarding the probability distribution of future events' outcomes can partially explain the stock market's inefficient response to resolution of uncertainty. In our experiment, we analyze stock returns of publicly traded European soccer clubs...

We examine firms' incentives to go public in the presence of product market competition. As a result of their greater ability to diversify idiosyncratic risk in the capital market, public firms' owners tolerate higher profit variability than owners of private firms. Consequently, public firms...

In this paper we examine a new effect of risky debt on a firm's investment strategy. We call this effect ldquo;accelerated investmentrdquo;. It stems from a potential loss of investment option in the event of default. The possibility of default reduces the value of the option to wait and...

This paper provides evidence that the positive relation between firm-level stock returns and firm-level return volatility is due to real options that firms possess. Consistent with the theoretical prediction that the value of a real option should be increasing in the volatility of the underlying...

We propose a model that links a firm's decision to go public with its subsequent takeover strategy. A private bidder does not know its true valuation, which affects its gain from a potential takeover. Consequently, a private bidder pursues suboptimal restructuring policy. An alternative route is...

We examine firms' strategic incentives to engage in horizontal mergers. In a real options framework, we show that strategic considerations may explain abnormally high takeover activity during periods of positive and negative demand shocks. Importantly, this pattern emerges solely as a result of...

In this paper I examine the relation between the direct costs of issuing seasoned equity (SEO gross spreads) and the change in deviation of firms' leverage ratios from their estimated targets following SEOs. If underwriters have bargaining power vis-a-vis issuing firms in setting SEO fees and if...

I develop a simple model that examines the relations between the extent of competitive interaction among firms in output markets, their capital structures, and the aggressiveness of their operating strategies. A firm's optimal leverage is related to the degree to which its operating strategy...