This paper examines the relative magnitude of financial versus real frictions by looking at how firms react to cash shortfalls. We use a regression discontinuity design in which the discontinuity is the point of violation of underfunding of corporate defined benefit pension plans. We reexamine...

We develop a theoretical model in which disagreement between management and shareholders creates a link between investment and the stock market. We show that the stock price decreases in the level of disagreement. Because management uses the stock price to infer the level of disagreement, the...

Do firms extract information from their own stock prices when making investment decisions? To answer this question, we use and extend an econometric errors-in-variables remedy, which is appropriate because movements in the stock price in which the manager takes little interest can be treated...

This paper estimates costs of external finance, applying indirect inference to a dynamic structural model where the corporation endogenously chooses investment, distributions, lever ageand default. The corporation faces double taxation, costly state verification indebt markets, and...

Tobin's q is widely accepted as proxy for an underlying quot;truequot; q, which is assumed to characterize a firm's incentive to invest. Researchers have developed numerous methods for computing q. This paper assesses the measurement quality of different proxies for q. We adapt the...

We estimate real losses arising from the cross-sectional misallocation of financial liabilities. Extending the framework of Hsieh and Klenow (2009) to the liabilities side of the balance sheet, and using manufacturing firm data from the United States and China, we find significant misallocation...

We quantify the importance of collateral versus taxes for firms' capital structures. We estimate a dynamic contracting model in which a firm seeks financing and is subject to taxation. In the model, collateral constraints arise endogenously. Optimal leverage stays a safe distance from the...

We assemble a new, quarterly panel dataset that links firms' investment and financing to their employment and wages. In the data, wages are leverage are negatively related, both cross-sectionally and within firms. This pattern contradicts models in which firms insure workers against unemployment...

The neoclassical q-theory is a good start to understand the cross section of returns. Under constant return to scale, stock returns equal levered investment returns that are tied directly with characteristics. This equation generates the relations of average returns with book-to-market,...

We examine the neoclassical investment model using a panel of U.S. manufacturing firms. The standard model with no financing constraints cannot be rejected for firms with high (pre-sample) dividend payouts. However, it is decisively rejected for firms with low (pre-sample) payouts (firms we...