Pages: i-iii | Published: 5/2011 | DOI: 10.1111/j.1540-6261.2011.01678.x | Cited by: 0
Pages: iv-v | Published: 5/2011 | DOI: 10.1111/j.1540-6261.2011.01676.x | Cited by: 0
Pages: 689-720 | Published: 5/2011 | DOI: 10.1111/j.1540-6261.2011.01649.x | Cited by: 132
VIRAL V. ACHARYA, STEWART C. MYERS, RAGHURAM G. RAJAN
We develop a model of internal governance where the selfâserving actions of top management are limited by the potential reaction of subordinates. Internal governance can mitigate agency problems and ensure that firms have substantial value, even with little or no external governance by investors. External governance, even if crude and uninformed, can complement internal governance and improve efficiency. This leads to a theory of investment and dividend policy, in which dividends are paid by selfâinterested CEOs to maintain a balance between internal and external control.
Pages: 721-751 | Published: 5/2011 | DOI: 10.1111/j.1540-6261.2011.01650.x | Cited by: 35
FRANCIS A. LONGSTAFF
We study the marginal tax rate incorporated into shortâterm municipal rates using municipal swap market data. Using an affine model, we identify the marginal tax rate and the credit/liquidity spread in 1âweek taxâexempt rates, as well as their associated risk premia. The marginal tax rate averages 38.0% and is related to stock, bond, and commodity returns. The tax risk premium is negative, consistent with the strong countercyclical nature of afterâtax fixedâincome cash flows. These results demonstrate that tax risk is a systematic asset pricing factor and help resolve the muniâbond puzzle.
Pages: 753-787 | Published: 5/2011 | DOI: 10.1111/j.1540-6261.2011.01651.x | Cited by: 113
DHAMMIKA DHARMAPALA, C. FRITZ FOLEY, KRISTIN J. FORBES
The Homeland Investment Act provided a tax holiday for the repatriation of foreign earnings. Advocates argued the Act would alleviate financial constraints by reducing the cost to U.S. multinationals of accessing internal capital. This paper shows that repatriations did not increase domestic investment, employment, or R&Dâeven for firms that appeared to be financially constrained or lobbied for the holiday. Instead, a $1 increase in repatriations was associated with a $0.60 to $0.92 increase in shareholder payouts. Regulations intended to restrict such payouts were undermined by the fungibility of money. Results indicate that U.S. multinationals were not financially constrained and were wellâgoverned.
Pages: 789-822 | Published: 5/2011 | DOI: 10.1111/j.1540-6261.2011.01652.x | Cited by: 169
LORENZO GARLAPPI, HONG YAN
We explicitly consider financial leverage in a simple equity valuation model and study the crossâsectional implications of potential shareholder recovery upon resolution of financial distress. Our model is capable of simultaneously explaining lower returns for financially distressed stocks, stronger bookâtoâmarket effects for firms with high default likelihood, and the concentration of momentum profits among low credit quality firms. The model further predicts (i) a humpâshaped relationship between value premium and default probability, and (ii) stronger momentum profits for nearly distressed firms with significant prospects for shareholder recovery. Our empirical analysis strongly confirms these novel predictions.
Pages: 823-872 | Published: 5/2011 | DOI: 10.1111/j.1540-6261.2011.01653.x | Cited by: 174
RONALD W. MASULIS, SHAWN MOBBS
Agency theory and optimal contracting theory posit opposing roles and shareholder wealth effects for corporate inside directors. We evaluate these theories using the market for outside directorships to differentiate among inside directors. Firms with inside directors holding outside directorships have better operating performance and marketâtoâbook ratios, especially when monitoring is more difficult. These firms make better acquisition decisions, have greater cash holdings, and overstate earnings less often. Announcements of outside board appointments improve shareholder wealth, while departure announcements reduce it, consistent with these inside directors improving board performance and outside directorships being an important source of inside director incentives.
Pages: 873-909 | Published: 5/2011 | DOI: 10.1111/j.1540-6261.2011.01654.x | Cited by: 82
STEFAN NAGEL, KENNETH J. SINGLETON
We find that several recently proposed consumptionâbased models of stock returns, when evaluated using an optimal set of managed portfolios and the associated modelâimplied conditional moment restrictions, fail to capture key features of risk premiums in equity markets. To arrive at these conclusions, we construct an optimal Generalized Method of Moments (GMM) estimator for models in which the stochastic discount factor (SDF) is a conditionally affine function of a set of priced risk factors, and we show that there is an optimal choice of managed portfolios to use in testing a null model against a proposed alternative generalized SDF.
Pages: 911-946 | Published: 5/2011 | DOI: 10.1111/j.1540-6261.2011.01655.x | Cited by: 481
JACK BAO, JUN PAN, JIANG WANG
This paper examines the illiquidity of corporate bonds and its assetâpricing implications. Using transactions data from 2003 to 2009, we show that the illiquidity in corporate bonds is substantial, significantly greater than what can be explained by bidâask spreads. We establish a strong link between bond illiquidity and bond prices. In aggregate, changes in marketâlevel illiquidity explain a substantial part of the time variation in yield spreads of highârated (AAA through A) bonds, overshadowing the credit risk component. In the crossâsection, the bondâlevel illiquidity measure explains individual bond yield spreads with large economic significance.
Pages: 947-980 | Published: 5/2011 | DOI: 10.1111/j.1540-6261.2011.01656.x | Cited by: 68
NEAL M. STOUGHTON, YOUCHANG WU, JOSEF ZECHNER
Pages: 981-1009 | Published: 5/2011 | DOI: 10.1111/j.1540-6261.2011.01657.x | Cited by: 34
ILONA BABENKO, MICHAEL LEMMON, YURI TSERLUKEVICH
Exercises of employee stock options generate substantial cash inflows to the firm. These cash inflows substitute for costly external finance in those states of the world in which the demand for investment is high. Using the fact that the proceeds from option exercises exhibit a distinct nonlinearity around the point where options fall out of the money, we estimate that firms increase investment by $0.34 for each dollar received from the exercise of stock options. Firms that face higher external financing costs allocate more of the proceeds from option exercises to investment.
Pages: 1011-1041 | Published: 5/2011 | DOI: 10.1111/j.1540-6261.2011.01658.x | Cited by: 68
TROND M. DĂSKELAND, HANS K. HVIDE
Using a novel data set covering all individual investors' stock market transactions in Norway over 10 years, we analyze whether individual investors have a preference for professionally close stocks, and whether they make excess returns on such investments. After excluding ownâcompany stock holdings, investors hold 11% of their portfolio in stocks within their twoâdigit industry of employment. Given the poor hedging properties of such investments, one would expect abnormally high returns. In contrast, all estimates of abnormal returns are negative, in many cases statistically significant. Overconfidence seems the most likely explanation for the excessive trading in professionally close stocks.
Pages: 1043-1044 | Published: 5/2011 | DOI: 10.1111/j.1540-6261.2011.01659.x | Cited by: 0
Pages: 1045-1049 | Published: 5/2011 | DOI: 10.1111/j.1540-6261.2011.01677.x | Cited by: 0