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;...

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...

We investigate implications for the cost of capital in a model with agency conflicts between inside and outside shareholders, where the severity of agency costs depends on a parameter representing investor protection. Using firm-level data for Italy and Germany we find significant differences in...

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...

We document that investment banker directorships are mutually beneficial to the investment bank and the firm. Investment bankers serve on boards of larger, higher growth firms. These firms benefit from lower gross spreads and smaller underpricing when issuing equity, and raise more external...

Himmelberg, Hubbard, and Love combine the agency theory of the firm with risk diversification incentives for insiders. Principal-agent problems between insiders and outsiders force insiders to retain a larger share in their firm than they would under a perfect risk diversification strategy. The...

This paper evaluates the influence of financial contracting costs on the propensity for public corporations to lease fixed capital. We argue that firms facing high costs of external credit, due either to severe asymmetric information or agency costs can economize on the cost of credit by...

The Republic of Serbia is characterized by an unsatisfactory macroeconomic environment. Under the conditions of an evident shortage of liquid assets, the financial capital has moved from real to the financial sector, which led companies to over-indebtedness and shutdown of their own capacities....

Fixed investment was the most important contributing factor to the boom-bust cycle in Cyprus over the last decade. Investment boomed during a credit boom in mid-2000s, during which the corporate sector borrowed heavily. Investment collapsed after 2008 when the credit boom ended. Investment and...

Lack of shareholders' commitment about debt and investment policies increases the cost of debt by a quantity that we refer to as the agency (credit) spread. The agency spread increases with the number of periods for which debt holders are exposed to policies that decrease the value of debt: from...