Economists have long recognized that competition and innovation interact as key drivers of economic growth (Schumpeter, 1943; Arrow, 1962; Aghion and Howitt, 1992). Acknowledging this, regulators carefully scrutinize competitive behaviors that potentially affect innovation incentives, in particular in...

We study the effect of investor horizons on a comprehensive set of corporate decisions. We argue that monitoring by long-term investors generates decision making that maximizes shareholder value. We find that long-term investors strengthen governance and restrain managerial misbehaviors such as...

Operating leverage increases profitability and reduces optimal financial leverage. Thus, operating leverage generates a negative relation between profitability and financial leverage that is thought to be inconsistent with the trade-off theory, but is commonly observed in the data. We...

We test whether the well-documented high returns of private equity sponsors result from wealth transfers from other financial claimants and counterparties and from a focus on short-term profits at the expense of long-term value. Debt investors who finance buyouts, as well as buyers of private...

Although compensation contracts rarely include cash holdings as a factor, we show that high cash holdings can be used by executives in the ex post bargaining over compensation. An increase of cash holdings by 10% of assets corresponds to about $2.7 million in additional CEO total compensation....

Firm value can change substantially between the time deal terms for a public target are set and closing, risking renegotiation or termination. We find increases in market volatility decrease subsequent deal activity, but only for public targets subject to an interim period. The effect is...

The greater is the fraction of a firm's cash held overseas, the lower shareholders value that cash. This goes beyond a pure tax effect — the repatriation tax friction disrupts the firm's internal capital market, distorting its investment policy. Firms underinvest domestically and overinvest...

We represent the economy as a network of industries connected through customer and supplier trade flows. Using this network topology, we find that stronger product market connections lead to a greater incidence of cross-industry mergers. Second, mergers propagate in waves across the network...

Announcements of mergers where the target is offered stock very often discuss the impact of the deal on the acquirer's earnings per share (EPS), especially when the deal is EPS-accretive for the acquirer. In this paper, we document that the acquirer's EPS-sensitivity affects how deals are...

Cross-border merger activity is growing in importance. We map the global trade network each year from 1989 to 2016 and compare it to cross-border and domestic merger activity. Trade-weighted merger activity in trading partner countries has statistically and economically significant explanatory...