The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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A Theory of Zombie Lending
Published: 4/26/2021, Volume: 76, Issue: 4 | DOI: 10.1111/jofi.13022 | Cited by: 89
YUNZHI HU, FELIPE VARAS
An entrepreneur borrows from a relationship bank or the market. The bank has a higher cost of capital but produces private information over time. While the entrepreneur accumulates reputation as the lending relationship continues, asymmetric information is also developed between the bank/entrepreneur and the market. In this setting, zombie lending is inevitable: Once the entrepreneur becomes sufficiently reputable, the bank will roll over loans even after learning bad news, for the prospect of future market financing. Zombie lending is mitigated when the entrepreneur faces financial constraints. Finally, the bank stops producing information too early if information production is costly.
CEO Horizon, Optimal Pay Duration, and the Escalation of Short‐Termism
Published: 3/26/2019, Volume: 74, Issue: 4 | DOI: 10.1111/jofi.12770 | Cited by: 109
IVAN MARINOVIC, FELIPE VARAS
This paper studies optimal contracts when managers manipulate their performance measure at the expense of firm value. Optimal contracts defer compensation. The manager's incentives vest over time at an increasing rate, and compensation becomes very sensitive to short‐term performance. This generates an endogenous horizon problem whereby managers intensify performance manipulation in their final years in office. Contracts are designed to encourage effort while minimizing the adverse effects of manipulation. We characterize the optimal mix of short‐ and long‐term compensation along the manager's tenure, the optimal vesting period of incentive pay, and the dynamics of short‐termism over the CEO's tenure.
Real Options, Product Market Competition, and Asset Returns
Published: 3/13/2009, Volume: 64, Issue: 2 | DOI: 10.1111/j.1540-6261.2009.01454.x | Cited by: 166
FELIPE L. AGUERREVERE
We study how competition in the product market affects the link between firms' real investment decisions and their asset return dynamics. In our model, assets in place and growth options have different sensitivities to market wide uncertainty. The strategic behavior of market participants influences the relative importance of these components of firm value. We show that the relationship between the degree of competition and assets' expected rates of return varies with product market demand. When demand is low, firms in more competitive industries earn higher returns, whereas when demand is high firms in more concentrated industries earn higher returns.
Funding Liquidity without Banks: Evidence from a Shock to the Cost of Very Short‐Term Debt
Published: 7/29/2019, Volume: 74, Issue: 6 | DOI: 10.1111/jofi.12832 | Cited by: 31
FELIPE RESTREPO, LINA CARDONA‐SOSA, PHILIP E. STRAHAN
In 2011, Colombia instituted a tax on repayment of bank loans, which increased the cost of short‐term bank credit more than long‐term credit. Firms responded by cutting short‐term loans for liquidity management purposes and increasing the use of cash and trade credit. In industries in which trade credit is more accessible (based on U.S. Compustat firms), we find substitution into accounts payable and little effect on cash and investment. Where trade credit is less available, firms increase cash and cut investment. Thus, trade credit provides an alternative source of liquidity that can insulate some firms from bank liquidity shocks.
The Real Effects of Credit Ratings: The Sovereign Ceiling Channel
Published: 1/12/2017, Volume: 72, Issue: 1 | DOI: 10.1111/jofi.12434 | Cited by: 276
HEITOR ALMEIDA, IGOR CUNHA, MIGUEL A. FERREIRA, FELIPE RESTREPO
We show that sovereign debt impairments can have a significant effect on financial markets and real economies through a credit ratings channel. Specifically, we find that firms reduce their investment and reliance on credit markets due to a rising cost of debt capital following a sovereign rating downgrade. We identify these effects by exploiting exogenous variation in corporate ratings due to rating agencies' sovereign ceiling policies, which require that firms' ratings remain at or below the sovereign rating of their country of domicile.