In this paper we argue that the main empirical findings about firm diversification and performance are actually consistent with a resource-based view of corporate diversification, where firms seek to maximize shareholder value. In our model, diversification is the natural result of firm growth...

We document a new stylized fact regarding the term-structure of futures volatility. We show that the relationship between the volatility of futures prices and the slope of the term structure of prices is non-monotone and has a V-shape. This aspect of the data cannot be generated by basic models...

We use a fully-specified neoclassical model augmented with costly external equity as a laboratory to study the relations between stock returns and equity financing decisions. Simulations show that the model can simultaneously and in many cases quantitatively reproduce: procyclical equity issuance;...

The q-theory implies that investment is a first-order determinant of the cross section of expected returns, and that optimal investment drives the external financing anomalies. Our neoclassical model simultaneously and in many cases quantitatively reproduces: Procyclical equity issuance waves;...

More financially constrained firms are riskier and earn higher expected returns than less financially constrained firms, although this effect can be subsumed by size and book-to-market. Further, because the stochastic discount factor makes capital investment more procyclical, financial...

Why do returns fall when firms diversify? In this paper, I show that this and other stylized facts about the performance of diversified firms are fully consistent with optimal firm behavior. In my model, corporate diversification is driven by economies of scale, synergies and better production...

We use a fully-specified neoclassical model augmented with costly external equity as a laboratory to study the relations between stock returns and equity financing decisions. Simulations show that the model can simultaneously and in many cases quantitatively reproduce: procyclical equity issuance;...

Using data on over 6000 loans issued to US firms between 1990 and 2004, we find that lower takeover defenses (as proxied by lower G-index of Gompers, Ishii and Metrick (2003)) significantly increase the cost of bank loans for a firm. Firms with lowest takeover defense (democracy) pay 25% higher...

Traditional liquidity measures can provide a false impression of the liquidity and stability of financial market trading. Using data on auctions (bids wanted in competition; BWICs) from the collateralized loan obligation (CLO) market, we show that a standard measure of liquidity, the effective...