Agency theory implies that asset ownership and decision authority are complements. Using 1998 data from Texas commercial banks, we test whether the likelihood of local ownership of bank offices increases with the importance of granting local managers greater decision authority (for example, due...

Current theories of capital structure have difficulty explaining the aspects of financing behavior we document. In contrast to the tradeoff theory, seasoned equity offers frequently move firms away from their target leverage ratios. At odds with the pecking-order theory, SEO firms typically are...

We review some of the recent work in agency theory that has implications for the structure of the corporation, in particular the resolution of conflicts of interest among stockholders, managers, and creditors. We analyze the nature of residual claims and the separation of management and risk...

We investigate the role of outside directors in the corporate-control process by exploiting variation in ownership structure within the insurance industry. In mutuals, ownership rights are not transferable. This inalienability restricts the effectiveness of control mechanisms like external...

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...

This paper analyzes the interaction among investment, financing and hedging policies in a model where managers derive perquisites from investment. In our model, both hedging and financing policies affect a firm's investment policy, thus changing costs of over- and underinvestment. The paper...

We examine theories of leverage and debt maturity, focusing on the impact of a firm's investment opportunity set and regulatory environment in determining these policies. Using results on strategic complementarities, we identify sufficient conditions for the theory to have testable implications...

We relate the value of growth options in the firm's investment opportunity set to the level of debt in the firm's capital structure. Underinestment costs of debt increase and free cash flow benefits fall with additional growth options. Thus, if debt capacity is defined as the amount of debt the...

The debate over risks and regulation in derivatives markets has failed to provide a clear analysis of what risks are and whether regulation is useful for their control. In this paper we provide a parametric model to analyze default risk in derivative contracts. A firm is less likely to default...