Using a large sample of privatized firms, we find that state ownership is significantly positively associated with the use of bank debt financing, suggesting that privatized firms benefit from the soft budget constraint associated with state ownership. We further find that the relation is more pronounced in countries with high government ownership of banks, high corruption in bank lending, a left-oriented government, and a collectivist national culture, which provides additional support for the soft-budget-constraint view. Finally, in external validity tests, we find that state ownership affects other aspects of debt structure, such as debt maturity and debt security.

This study exploits a new long-run data set of daily bid and offered exchange rates in spot and forward markets from 1919 to the present to analyze carry returns in fixed and floating currency regimes. We first find that outsized carry returns occur exclusively in the floating regime, being zero in the fixed regime. Second, we show that fixed-to-floating regime shifts are associated with negative returns to a carry strategy implemented only on floating currencies, robust to the inclusion of volatility risks. These shifts are typically characterized by global flight-to-safety events that represent bad times for carry traders.

We find a positive relation between the amount of pension deficits and the cost of bank loans. The effect of pension deficits on the cost of bank loans is driven by financial constraints, information-asymmetry problems, and higher pension-investment risk. Banks tighten lending terms for firms with larger pension deficits by requiring collateral, increasing the number of loan covenants, and shortening loan maturity. Borrowers with larger pension deficits are also more likely to violate covenants in the future. Collectively, these findings indicate that pension deficits represent an additional source of risk priced by banks.

We develop an intertemporal asset pricing model where cash-flow news, discount-rate news, and their second moments are priced by the market. This model generalizes the market-return decomposition framework, showing that intertemporal considerations imply a decomposition of squared market returns (coskewness risk). Our model accounts for 68% of the return variation across portfolios sorted by size, book-to-market ratio, momentum, investment, and profitability for a modern U.S. sample period. Further, our findings highlight the importance of covariation risk, that is, the risk of simultaneous unfavorable shocks to cash flows and discount rates, in understanding equity risk premia.

We evaluate the link between chief executive officer (CEO) industry tournament incentives (ITIs) and the product-market benefits of corporate liquidity. We find that ITIs increase the level and marginal value of cash holdings. Furthermore, ITIs strengthen the relation between excess cash and market-share gains, especially for firms that face significant competitive threats. Additionally, for firms with excess cash, higher ITIs lead to increased research and development (R&D) expenses, capital expenditures, and spending on focused acquisitions as well as reduced payouts. Overall, our findings suggest that ITIs increase the value of cash by incentivizing CEOs to deploy cash strategically to capture its product-market benefits.

Traders can reduce search costs in dealership markets by entering relationships with dealers. However, dealers draw little informational benefit from these relationships in Treasury markets, due to low risk and information asymmetry. We investigate the extent, duration, effects on pricing, and potential benefits of client–dealer relationships. We find that relationship strength leads to higher execution costs for clients, more so during stressed market conditions but less so in the presence of information asymmetry and when trading in corporate bonds. Relationship traders are compensated with immediacy at times when search is costly.

We study whether it is better to enforce the zero lower bound (ZLB) in models of U.S. Treasury yields using a shadow rate model or a quadratic term structure model. We show that the models achieve a similar in-sample fit and perform comparably in matching conditional expectations of future yields. However, when the recent ZLB period is included in the sample, the models’ ability to match conditional expectations away from the ZLB deteriorates because the time-series dynamics of the pricing factors change. In addition, neither model provides a reasonable description of conditional volatilities when yields are away from the ZLB.

We highlight the role of cash-flow uncertainty on corporate employment and investment. We find that a 1% increase in cash-flow uncertainty leads to a 0.62% decrease in tangible investment, a 1.39% decrease in intangible investment, and a 3.67% decrease in corporate employment growth. Our results are statistically and economically significant. We further find that these relationships are stronger during economic recessions. Our findings have significant policy implications. To wit, if policy makers would like corporations to increase their employment and investment, they should focus on policies that decrease corporate cash-flow uncertainty.

This article introduces the impact of debt misvaluation on merger and acquisition activity. We show the potential for debt misvaluation to help explain the shifting dominance of financial acquirers (private equity firms) relative to strategic acquirers (operating companies). Fundamental differences in governance and project coinsurance between the two types of acquirer would interact with debt misvaluation, resulting in variation in how assets are owned that depends on debt market conditions. We find support for our theory in merger data using a novel measure of debt misvaluation.

I report evidence that shareholders holding a combined 15% of shares are inattentive or partially inattentive when confronted with the decision to receive cash or stock for their shares in acquisitions. The average cost of such inattention is 2%, and it increases to 6% for the tertile of transactions with the greatest difference between the cash and stock values. Most interestingly, I show that inattention affects stock prices because attentive shareholders bid up the stock price in anticipation of a wealth transfer from inattentive shareholders.

We study the effects of accounting losses on chief executive officer (CEO) turnover. If accounting losses provide incremental information about managerial ability, boards can utilize the information in losses to assess CEOs’ stewardship of assets, which is why losses may serve as a heuristic for managerial failure. We find a positive relation between losses and subsequent CEO turnover after controlling for other accounting and stock-performance measures. We also find that losses are associated with an increase in board activity and that losses predict poor operating performance and future financial problems. Our results explain why CEOs manage earnings to avoid losses.

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 demonstrate the effect of operating leverage on firms’ profitability and financial leverage, as well as on the empirical relation between profitability and financial leverage, by using China’s entry into the World Trade Organization in 2001 and its effect on the capital–labor ratio of U.S. firms.

Using a natural experiment to identify the causal effect of an increase in default risk on firm actions, I find little evidence managers shift risk to corporate pension plans following an exogenous shock to the firm’s long-term liabilities. The finding is robust to focusing on firms where the incentive to engage in risk shifting is arguably the greatest, such as financially vulnerable firms and firms with fewer agency conflicts. This study casts doubt on the risk-shifting hypothesis and shows managers do not take risk-shifting actions that would increase shareholder value even when those actions pose little threat to managerial utility.

Academic literature, practitioners, courts, and regulators routinely assert that both private and subsidiary targets sell at discounts relative to public targets. However, the empirical evidence to support this conclusion is thin. Our work alters the methodology from prior research to avoid biases due to both one-sided sample truncation and Jensen’s inequality. Following these changes, we find no evidence that unlisted targets sell at discounts. Our results hold under a number of different approaches and after controlling for known determinants of acquisition pricing.

We document that the likelihood of asset sales increases with union presence and union wages. Furthermore, acquiring firms gain significant concessions from the incumbent union following asset sales. Finally, the anticipation of union concessions helps explain the excess stock returns around asset sale announcements. We find no comparable effects for takeovers. We conclude that asset sales, but not takeovers, are partially motivated by the potential to extract concessions from unions.

Research departments are managed by directors of research (DORs). Subordinate analysts working for higher-quality DORs provide superior earnings forecasts that elicit stronger market reactions, provide better investment recommendations, and have better career outcomes. For the broker, higher-quality DORs drive more trading commissions. Economically, analysts benefit the most from DOR–analyst industry alignment resulting from DORs’ former analyst experience. We provide several tests to mitigate endogeneity concerns and explore various mechanisms to explain these results. Overall, our article identifies a unique channel whereby the industry-specific and general human capital of top management filters through to individual subordinates and consequently improves organizational performance.