We propose a theory of asset prices that emphasizes heterogeneous information as the main element determining prices of different securities. Our main analytical innovation is in formulating a model of noisy information aggregation through asset prices, which is parsimonious and tractable, yet...

The paper reports that, when firms follow the Pecking Order Theory, a sub-optimality with the cost components of firms' capital structure exists. The sub-optimality drives firms to follow the Trade-Off Theory to reach optimality concerning the cost components of capital structure. At higher...

Purpose – The existing literature on real estate investment trust (REIT) capital-structure decisions implicitly excludes either interest payment tax shield benefits or a trust's growth potential. The purpose of this paper is to test the long-term debt leverage decisions of listed property...

The notion of residual estimation risk is introduced in order to study the impact of parameter uncertainty on capital adequacy, for a given risk measure and capital estimation procedure. Residual estimation risk is derived by applying the risk measure on a portfolio consisting of a random loss...

Article originally published in the volume 58 issue 230-231 of Moneta e Credito, 2005, pp. 255-67.I teoremi di Modigliani e Miller (MM) sono una pietra miliare della finanza per due ragioni. La prima è sostanziale e deriva dalla loro natura di “proposizioni di irrilevanza”: essi individuano...

The inverse relation between leverage and profitability is widely regarded as a serious defect of the tradeoff theory. We show that the defect is not with the theory but with the use of a leverage ratio in which profitability affects both the numerator and the denominator. Profitability directly...

Frequently described as a ‘much ignored' focus of academic research, small venture financing has been the subject of a burgeoning literature in the past two decades. A considerable amount of research comprises empirical tests of theories developed in the field of corporate finance....

We investigate the stakeholder theory of capital structure from the perspective of a firm's relationships with its employees. We find that firms that treat their employees fairly (as measured by high employee-friendly ratings) maintain low debt ratios. This result is robust to a variety of model...

During a financial crisis, when markets most need liquidity and arbitrage tradings, hedge funds often reduce their exposures and positions. The paper explains this phenomenon in light of coordination risk. We argue that the fragile nature of capital structure of hedge funds, combined with low...

This paper analyses some of the empirical implications of the pecking order theory in the Spanish market using a panel data analysis of 1,566 firms over 1994-2000. The results show that the pecking order theory holds for most subsamples analyzed, particularly for the small and medium-sized...