We analyze the stock market return predictability for three different periods. We evaluate the conditional variance (CV) and the variance risk premium (VRP) as predictors of stock market returns for which we are using well-established versions of the heterogeneous auto-regressive (HAR) model and...

There is growing support for taxes on short-term capital inflows in emerging markets, such as the encaje adopted by Chile from 1991-98. Previous empirical assessments of the encaje conclude that it may have generated some small economic benefits, such as shifting the composition of capital...

Interest rate swaps are the most popular financial derivatives used by US firms. In this paper, the effects of swap usage on corporate financing decisions are empirically examined. Based on a dynamic capital structure theoretical model, we employ a seemingly unrelated regression model with a...

This paper provides new evidence of how macroeconomic conditions affect capital structure choice. We model firms' target capital structures as a function of macroeconomic conditions and firm-specific variables. We split our sample based on a measure of financial constraints. Target leverage is...

Aggregate public corporate security issues forecast excess returns on stocks, government bonds and corporate bonds. A high ratio of aggregate short term to aggregate long term debt issues and a low ratio of aggregate equity to aggregate debt issues forecasts high excess returns at frequencies...

Germany and the United States are generally seen as the two competing systems of corporate governance. In search for a comparative welfare analysis of the financial systems, we are interested in (i) the aggregate value-added of corporate investments in the two countries and in (ii) the...

This paper provides a rigorous mathematical treatment of the problem of valuation of a firm in a deterministic, partial equilibrium framework. It is shown that the dividend and arbitrage approaches to valuation are not equivalent in general. A necessary and sufficient condition for their...

Using a dynamic asset pricing model with managerial empire-building incentives, this paper shows that the effect of corporate governance on the cost of equity capital is procyclical. In the model, managers seek private benefits and tend to over-invest. Corporate governance serves as a mechanism...

In 2006-2007, convert funded stock buybacks are popular. Why? Consider Cypress Semiconductor's complex transaction. In March 2007, its stock at $18.89, Cypress sells $600 million of converts, enters a $571 million VWAP (volume weighted average price) stock buyback contract, buys calls and sells...

This paper offers a new perspective on why business groups are formed. Specifically, we ask if the expectation of a government bailout lowers group-affiliated firms’ cost of capital. Using a quasi-natural experiment, we show that group-affiliated firms paid lower interest when a government...