Based on an analysis of the agency risk for bondholders from managerial entrenchment and fraud, and using an efficient contracting framework, we derive and test refutable hypotheses about the influence of managerial moral hazard on the use of bond covenants. Entrenched managers can both...

Recent court decisions, starting with the State Street decision in 1998, allow business methods to be patentable and now give financial institutions the option to seek patent protection for financial innovations. We develop a dynamic model that incorporates salient aspects of the adoption and...

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....

Agents are generally uncertain about multiple, and possibly time-varying, structural parameters that drive consumption and financial payoffs but learn through noisy correlated signals, such as aggregate or macroeconomic news. We find that dynamic learning of multivariate time-varying parameters...

We calculate a time series of the value of federal mineral rights in oil and natural gas by using various estimates of proven and unproven reserves and time series on federal government royalties and bonus payments. We also present estimates of the components of the revaluation of this series...

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 theoretically and empirically address the endogeneity of corporate ownership structure and the cost of debt, with a novel emphasis on the role of control concentration in post-default firm restructuring. Control concentration raises agency costs of debt, and dominant shareholders trade off...

What are the primary determinants of risk management by firms and what, in particular, is the role of managerial entrenchment and free cash flow agency costs? We examine these issues using a unique dataset with detailed quarterly data on hedging by upstream oil and gas firms during 1996-2008....