We show that the value maximizing hurdle rate for Ramp;D is less than for conventional investment despite the fact that Ramp;D has development risk. Because development risk arises only during Ramp;D, entrepreneurs control this risk by pursuing or deferring Ramp;D. This risk management moderates...

This paper revisits the important result of the real options approach to investment under uncertainty, which states that increased uncertainty raises the value of waiting and thus decelerates investment. Typically in this literature projects are assumed to be perpetual. However, in today's...

The standard valuation technique - discounted cash flows (DCF) - estimates value as the present value of expected future cash flows. This technique is typically implemented under an assumption that investment policy is independent of prices. In reality, management responds to fluctuating...

We introduce a new, market-based and forward looking measure of political risk derived from the yield spread between a country's U.S. dollar debt and an equivalent U.S. Treasury bond. We explain the variation in these sovereign spreads with four factors: global economic conditions,...

English Abstract: This practical paper recognizes the need for non-traded companies, most of them SMEs, (Small and Medium-size Enterprises), to have appropriate tools to address the definition and estimation of the cost of capital. This concept is critical to determine the feasibility of an...

This paper studies the link between bank capital regulation, bank loan contracts and the allocation of corporate resources across firms' different business lines. Credit risk is lower when firms write contracts that oblige them to invest mainly into projects with highly tangible assets. We argue...

This paper studies the impact of executive pensions and deferred compensation plans, collectively known as "inside debt'', on corporate failures. I find that, on average, a firm whose CEO holds a larger fraction of the firm's debt than equity (i.e., when the ratio of the CEO's inside debt...

Spanish Abstract: En este trabajo se plantea la necesidad de las empresas no transadas en bolsa, la mayoría de ellas, PYMEs, (Pequeñas y Medianas Empresas) de contar con herramientas apropiadas para abordar la definición y estimación del costo promedio ponderado de capital. Este concepto es...

We examine the value effect of working capital management (WCM) for a large sample of US firms between 1982-2011. Our results indicate (i) the existence of an optimal level of working capital policy; and (ii) firms that converge to that optimal level (either by increasing or decreasing their...