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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Search results: 6.
Sorting Out Sorts
Published: 03/31/2007 | DOI: 10.1111/0022-1082.00210
Jonathan B. Berk
In this paper we analyze the theoretical implications of sorting data into groups and then running asset pricing tests within each group. We show that the way this procedure is implemented introduces a bias in favor of rejecting the model under consideration. By simply picking enough groups to sort into, the true asset pricing model can be shown to have no explanatory power within each group.
Managerial Ability, Compensation, and the Closed‐End Fund Discount
Published: 03/20/2007 | DOI: 10.1111/j.1540-6261.2007.01216.x
JONATHAN B. BERK, RICHARD STANTON
This paper shows that the existence of managerial ability, combined with the labor contract prevalent in the industry, implies that the closed‐end fund discount should exhibit many of the primary features documented in the literature. We evaluate the model's ability to match the quantitative features of the data, and find that it does well, although there is some observed behavior that remains to be explained.
Regulation of Charlatans in High‐Skill Professions
Published: 02/06/2022 | DOI: 10.1111/jofi.13112
JONATHAN B. BERK, JULES H. VAN BINSBERGEN
We model a market for a skill in short supply and high demand, where the presence of charlatans (professionals who sell a service they do not deliver on) is an equilibrium outcome. In the model, reducing the number of charlatans through regulation lowers consumer surplus because of the resulting reduction in competition among producers. Producers can benefit from this reduction, potentially explaining the regulation we observe. The effect on total surplus depends on the type of regulation. We derive the factors that drive the cross‐sectional variation in charlatans (regulation) across professions.
Human Capital, Bankruptcy, and Capital Structure
Published: 05/07/2010 | DOI: 10.1111/j.1540-6261.2010.01556.x
JONATHAN B. BERK, RICHARD STANTON, JOSEF ZECHNER
We derive the optimal labor contract for a levered firm in an economy with perfectly competitive capital and labor markets. Employees become entrenched under this contract and so face large human costs of bankruptcy. The firm's optimal capital structure therefore depends on the trade‐off between these human costs and the tax benefits of debt. Optimal debt levels consistent with those observed in practice emerge without relying on frictions such as moral hazard or asymmetric information. Consistent with empirical evidence, persistent idiosyncratic differences in leverage across firms also result. In addition, wages should have explanatory power for firm leverage.
Matching Capital and Labor
Published: 06/22/2017 | DOI: 10.1111/jofi.12542
JONATHAN B. BERK, JULES H. BINSBERGEN, BINYING LIU
We establish an important role for the firm by studying capital reallocation decisions of mutual fund firms. The firm's decision to reallocate capital among its mutual fund managers adds at least $474,000 a month, which amounts to over 30% of the total value added of the industry. We provide evidence that this additional value added results from the firm's private information about the skill of its managers. The firm captures this value because investors reward the firm following a capital reallocation decision by allocating additional capital to the firm's funds.
Optimal Investment, Growth Options, and Security Returns
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00161
Jonathan B. Berk, Richard C. Green, Vasant Naik
As a consequence of optimal investment choices, a firm's assets and growth options change in predictable ways. Using a dynamic model, we show that this imparts predictability to changes in a firm's systematic risk, and its expected return. Simulations show that the model simultaneously reproduces: (i) the time‐series relation between the book‐to‐market ratio and asset returns; (ii) the cross‐sectional relation between book‐to‐market, market value, and return; (iii) contrarian effects at short horizons; (iv) momentum effects at longer horizons; and (v) the inverse relation between interest rates and the market risk premium.