Using a new set of risk benchmarks, we estimate the opportunity cost of equity capital for entrepreneurs, limited partners and general partners of venture capital funds. The figures we obtain turn out to be well below the internal rates of return (IRRs) customarily targeted in the private equity...

We provide evidence that firms with weak investment opportunities (those whose current earnings justify a greater valuation than firms with strong investment opportunities) signal their permanent earnings level through their dividends. In the cross-section, we show that both dividend levels and...