We study the dynamic implications of capital investment in innovative capacity (IC) on future stock returns, investment, and profitability by modeling the unique effects of IC investment on uncertain option generation/exercise and post-exercise revenue. The model highlights the diverse effects...

We examine whether financing commitments from a target firm's financial advisor, in the form of stapled financing, provide certification of target value. Using a dataset of leveraged buyouts spanning 2002-2011, and addressing endogeneity issues, we find that stapled financing has significantly...

We examine the effects of parameter uncertainty and Bayesian learning on equilibrium asset prices when all the structural parameters of the aggregate consumption and dividend growth rate processes are unknown. With realistic calibration of a parsimonious set of prior parameters, the model...

The objective of this paper is to empirically estimate the confidence intervals and compare some important statistics with regard to the mean of normal population by considering variance as ‘nuisance parameter', in the sense of Khan (1969). The paper uses the method of constructing a...

How do firms vary their capital investment and financing policies in response to business cycle fluctuations within their industry? To address this question, we use the regime-switching approach to compute the quarterly time-series of the probability of a future industry downturn for industry...

We review the recent theoretical and empirical literature on debt covenants with a particular focus on how creditor governance after covenant violations can influence the borrower's corporate policies. From the theoretical literature, we identify the key trade-offs that help explain the observed...

We review the recent theoretical and empirical literature on debt covenants with a particular focus on how creditor governance after covenant violations can influence the borrower's corporate policies. From the theoretical literature, we identify the key trade-offs that help explain the observed...

In this paper, we develop a theory of industry-wide over capacity and optimism among rational investors based on the manipulation of investors' beliefs by insiders. We analyze a dynamic model of corporate fraud, where manipulation and consequent investment distortions occur in equilibrium....

This paper examines the effects of incomplete information on dynamic investment and consumption in a general equilibrium model where shocks to capital are unobservable and there is structural or parameter uncertainty regarding the volatility of these shocks; i.e., the investment risk. In this...

We theoretically and empirically examine the role of the international takeover market in improving corporate governance standards across countries by curtailing dominant shareholder influence - globally, a principal source of agency risk. In our model, firms are privately informed of takeover...