We find that weak identification can lead to econometric problems with Fama-MacBeth regressions, including serious size distortions and biased point estimates. Two sources of weak identification are particularly important and have been little studied in the finance literature – small betas and...

Based on the Stein (1996) model of financing and capital expenditures when market beliefs may be affected by sentiment, this paper directly estimates the effect of sentiment on hurdle rates. The hurdle rates are estimated for periods of high and low sentiment, making use of cross-sectional...

Many economists believe that the stock market plays an important role in efficiently allocating capital to its most productive uses. This standard story of the stock market was called into question by events in the late 1990s, when some observers believed that stock market overvaluation – or a...

This paper is the first paper to break user cost into its natural pieces - the risk-adjusted market interest rate, tax variables, and the price of capital goods - and estimate the long-run effect of each on the capital stock.Why is the separation of user cost into interest rate, tax, and capital...

The effect of interest rates, capital goods prices, and taxes on the capital stock is an issue of central importance in economics, with implications for monetary policy, business cycle models, tax policy, economic development, growth, and other areas. For more than 30 years it has been difficult...

Financial market imperfections - particularly finance constraints - play an important role in modern corporate finance, but relatively little work has been done on the interaction between corporate finance and the broad operation of financial markets. In particular, relatively little has been...