One influential criticism of the stock market oriented U.S. financial system is that its excessive focus on short term quarterly earnings forces public firms to behave in a myopic manner. We hypothesize that if capital markets pressure listed firms to be myopic in a way that impacts efficiency,...

Recent theory posits a new governance channel available to blockholders: threat of exit. The threat of exit, as opposed to actual exit, is difficult to measure directly. However, a crucial property is that the threat of exit is weaker when stock liquidity is lower and vice versa. We use natural...

Using a novel information asymmetry index based on measures of adverse selection developed by the market microstructure literature, we test whether information asymmetry is an important determinant of capital structure decisions, as suggested by the pecking order theory. Our index relies...

Why do firms go public? Despite the existence of many theories addressing this question, lack of data on private firms before they are public hampers our ability to test these theories. We circumvent this challenge by testing reverse predictions of going public theories using firms' decisions to...

We examine the accuracy and contribution of the default forecasting model based on Merton's (1974) bond pricing model and developed by the KMV corporation. Comparing the KMV-Merton model to a similar but much simpler alternative, we find that it performs slightly worse as a predictor in hazard...

Firms with greater shareholder rights have higher risk-shifting incentives. Such firms should have more concentrated loan syndicates to ensure more intensive monitoring. In the United States, the second generation antitakeover laws reduced the shareholder rights significantly. We find that loan...

We examine the accuracy and contribution of the Merton distance to default (DD) model, which is based on Merton's (1974) bond pricing model. We compare the model to a naiuml;ve alternative, which uses the functional form suggested by the Merton model but does not solve the model for an implied...

This paper examines how external governance pressure provided by both the product market and the market for corporate control affects the type of debt that firms issue. Consistent with a governance mechanism substitution effect, we find that (i) an exogenous increase in governance pressure from...