We consider the optimal dynamic liquidity management of a financially constrained firm when its manager is risk-neutral but ambiguity-averse with respect to the firm's future cash flows. Managerial ambiguity-aversion generates endogenous time-varying worst-case beliefs that overweight recent...

We analyze a firm's investment problem when it faces preemption risk and profits are convex in market profitability. In a setup where firms have asymmetric profit convexity, which we relate to firm quality, we show that this has interesting effects on valuation and the order of entry. The...

This paper investigates how the damage apportionment between the auditor and the auditee affects (i) the quality of the internal control system (ICS), (ii) the supplied audit quality, and (iii) social welfare. The analysis takes place in a setting where the auditor is not only liable towards the...

We document that the variance risk premium in asset returns decreases firms' investments.We theoretically model the premium; we find that it increases the value of the real optionto delay an investment and, thus, influences investments negatively. Empirically, we verifythe negative link between...

The economic reliability of a performance metric depends on its consistency with the Net Present Value (NPV). We use the new notion of strong NPV-consistency for comparing the Straight-Line rate of return (belonging to the class of AIRR metrics) and the traditional Internal Rate of Return (IRR)....

We study the effects of uncertainty on corporate leverage adjustments with respect to investment spikes and find that overlevered and underlevered firms behave very differently in response to the combination of uncertainty and investment spikes. Overlevered firms facing high uncertainty converge...

This study investigates whether economic policy uncertainty (EPU) magnifies peer effects in corporate investment in China. Through use of the peer-firm-average idiosyncratic stock return to capture exogenous variation in peer firms' investment activities, we show that peer effects are stronger...

We develop a behavioral theory of real options that relaxes the informational and behavioral assumptions underlying applications of financial options theory to real assets. To do so, we augment real option theory's focus on uncertain future asset values (prospective uncertainty) with feedback...

We consider a decision maker's problem in a real option framework with several projects that can only be sequentially undertaken within a "decision horizon" - the time until projects are expired - and characterize the optimal sequence of exercises. A limited decision horizon leads to early...

The Capital Asset Pricing Model (CAPM) is theoretically incomplete in its demand-side focus, risk-averse investors, and internally inconsistent homogeneous beliefs; is not conclusively supported empirically; and yet it legitimizes a notion that investors can earn higher returns by bearing...