Does information leakage in a target’s social networks increase its stock price prior to a merger announcement? Evidence reveals that a target with more social connections indeed experiences a higher pre-announcement price run-up. This effect does not exist during or after the merger...

We develop a non-tax rationale for leasing in a double-sided asymmetric information setting, and analyze how various contractual provisions in leasing contracts arise in equilibrium. In our model, a manufacturer of capital goods has private information about their quality; entrepreneurs (users...

Abstract Mandatory convertibles, which are equity-linked hybrid securities that automatically convert to common stock on a pre-specified date, have become an increasingly popular means of raising capital in recent years (about $20 billion worth issued in 2001 alone). This paper presents the...

Suppose that there are two congestible modes of travel from A to B - road and rail for concreteness - which are imperfect substitutes in demand. Road congestion from A to B is underpriced; this is an unalterable distortion. Compared to the first best, should the transportation planner choose a...

This article studies variations in the value of diversification across time under variouscapital market conditions. I find that when external capital is more costly at the aggregatelevel, the value of conglomerates increases relative to focused firms. I also find that thisincrease is greater for...

Traditional finance theories typically treat leases and debt as substitutes. However, the empirical findings on the relation between leases and debt are mixed. This paper reinvestigates this relation. I present a model to incorporate different theories on the substitutability and complementarity...

In the paper, we find that diversification reduces the heterogeneity of investor beliefs on firm value. We obtain this finding by comparing not only between diversified and focused firms but also between diversifying and non-diversifying mergers. We also find that the reduced heterogeneity of...

This paper provides a rationale for the use of convertible securities as the medium of exchange in corporate change-of-control transactions. We argue that convertible securities can resolve the information asymmetry about the bidder’s value while at the same time mitigating the information...

This article studies variations in the value of diversification across time under various capital market conditions. I find that when external capital is more costly at the aggregate level, the value of conglomerates increases relative to focused firms. I also find that this increase is greater...

The objective of this paper is to develop a theoretical analysis of “mandatory convertibles,” which are securities that automatically (“mandatorily”) convert to common stock on a pre-specified date. We consider a firm facing a financial market characterized by asymmetric information and...