Enron plummeted from the 7th largest US firm and six-time winner of Fortune's most innovative firm award to bankruptcy in less than one year. However, management used financial engineering and related-party transactions to disguise Enron's financial condition for over three years. These...

We develop a dynamic investment options framework with optimal capital structure and analyze the effect of debt maturity. We find that in the absence of financing constraints short-term debt maximizes firm value. In contrast with most literature results, in the absence of constraints, higher...

We examine the ex-ante performance of 1185 firms that filed for bankruptcy between 1992 and 2009. Evidence suggests that firm specific poor operating performance and industry wide distress are the principal causes (contributing 42% each for cash flow shortfall) of corporate distress. We observe...

Since its publication, the seminal structural model of default by <xref ref-type="bibr" rid="B45">Merton (1974) has become the workhorse for gaining insights about how firms choose their capital structure, a “bread and butter” topic for financial economists. Capital structure theory is inevitably linked to several...</xref>

Private equity, hedge funds, sovereign wealth funds and other private pools of capital form part of the growing shadow banking system in the United States; these new financial intermediaries provide an alternative investment mechanism to the traditional banking system. Private equity and hedge...

We estimate firm-specific marginal cost of debt functions for a large panel of companies between 1980 and 2007. The marginal cost curves are identified by exogenous variation in the marginal tax benefits of debt. The location of a given company's cost of debt function varies with characteristics...

According to existing theories, short-term creditors promote corporate governance by responding quickly to new information. I show that this very feature of short-term debt can also hurt corporate governance, as it can undermine information revelation in financial markets. In particular,...

This study analyzed activism that leads to a merger or acquisition (M&A) of a firm to see its benefits for the shareholders at the target firm as well as its acquirer. It used over thirty years of data to understand the impact of the activists’ demands of strategic significance for the firms....

We derive a firm's optimal capital structure and managerial compensation contract when employees are averse to bearing their own human capital risk, while equity holders can diversify this risk away. In the presence of corporate taxes, our model delivers optimal debt levels consistent with those...

This paper develops a real option model in which the interaction between debt, liquidation policy and risky investments is studied. We consider a manager who owns the firm and faces the opportunity to invest in risky pro jects which may bo ost current profits at the cost of bankruptcy if they...