The Journal of Finance

Investment‐Based Corporate Bond Pricing

Published: 11/10/2014,  Volume: 69,  Issue: 6  |  DOI: 10.1111/jofi.12204  |  Cited by: 113

LARS‐ALEXANDER KUEHN, LUKAS SCHMID

A standard assumption of structural models of default is that firms' assets evolve exogenously. In this paper, we examine the importance of accounting for investment options in models of credit risk. In the presence of financing and investment frictions, firm‐level variables that proxy for asset composition are significant determinants of credit spreads beyond leverage and asset volatility, because they capture the systematic risk of firms' assets. Cross‐sectional studies of credit spreads that fail to control for the interdependence of leverage and investment decisions are unlikely to be very informative. Such frictions also give rise to a realistic term structure of credit spreads in a production economy.

Consumption Volatility Risk

Published: 11/12/2013,  Volume: 68,  Issue: 6  |  DOI: 10.1111/jofi.12058  |  Cited by: 135

OLIVER BOGUTH, LARS‐ALEXANDER KUEHN

We show that time variation in macroeconomic uncertainty affects asset prices. Consumption volatility is a negatively priced source of risk for a wide variety of test portfolios. At the firm level, exposure to consumption volatility risk predicts future returns, generating a spread across quintile portfolios in excess of 7% annually. This premium is explained by cross‐sectional differences in the sensitivity of dividend volatility to consumption volatility. Stocks with volatile cash flows in uncertain aggregate times require higher expected returns.

A Labor Capital Asset Pricing Model

Published: 6/5/2017,  Volume: 72,  Issue: 5  |  DOI: 10.1111/jofi.12504  |  Cited by: 105

LARS‐ALEXANDER KUEHN, MIKHAIL SIMUTIN, JESSIE JIAXU WANG

We show that labor search frictions are an important determinant of the cross‐section of equity returns. Empirically, we find that firms with low loadings on labor market tightness outperform firms with high loadings by 6% annually. We propose a partial equilibrium labor market model in which heterogeneous firms make dynamic employment decisions under labor search frictions. In the model, loadings on labor market tightness proxy for priced time‐variation in the efficiency of the aggregate matching technology. Firms with low loadings are more exposed to adverse matching efficiency shocks and require higher expected stock returns.

Positively Weighted Frontier Portfolios: A Note

Published: 6/1987,  Volume: 42,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1987.tb02579.x  |  Cited by: 4

LARS TYGE NIELSEN

Portfolio Selection in the Mean‐Variance Model: A Note

Published: 12/1987,  Volume: 42,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1987.tb04371.x  |  Cited by: 23

LARS TYGE NIELSEN

Positive Prices in CAPM

Published: 6/1992,  Volume: 47,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1992.tb04411.x  |  Cited by: 21

LARS TYGE NIELSEN

Some equilibrium prices in CAPM may be negative because of nonmonotonicity of preferences. We identify several sets of sufficient conditions for prices to be positive. The central conditions impose bounds on the investors' risk aversion. These bounds do not need to hold globally but only in a relevant range of portfolios or combinations of mean and standard deviation. The relevant range is specified on the basis of exogenous parameters and variables, and it must contain any endogenously determined equilibrium. The bounds on risk aversion ensure that the preferences for assets are sufficiently well‐behaved within the relevant range.

Assessing Specification Errors in Stochastic Discount Factor Models

Published: 6/1997,  Volume: 52,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1997.tb04813.x  |  Cited by: 631

LARS PETER HANSEN, RAVI JAGANNATHAN

In this article we develop alternative ways to compare asset pricing models when it is understood that their implied stochastic discount factors do not price all portfolios correctly. Unlike comparisons based on statistics associated with null hypotheses that models are correct, our measures of model performance do not reward variability of discount factor proxies. One of our measures is designed to exploit fully the implications of arbitrage‐free pricing of derivative claims. We demonstrate empirically the usefulness of our methods in assessing some alternative stochastic factor models that have been proposed in asset pricing literature.

Volatility Expectations and Returns

Published: 2/24/2022,  Volume: 77,  Issue: 2  |  DOI: 10.1111/jofi.13120  |  Cited by: 112

LARS A. LOCHSTOER, TYLER MUIR

We provide evidence that agents have slow‐moving beliefs about stock market volatility that lead to initial underreaction to volatility shocks followed by delayed overreaction. These dynamics are mirrored in the VIX and variance risk premiums, which reflect investor expectations about volatility, and are also supported in both surveys and firm‐level option prices. We embed these expectations into an asset pricing model and find that the model can account for a number of stylized facts about market returns and return volatility that are difficult to reconcile, including a weak or even negative risk‐return trade‐off.

Pricing Currency Risks

Published: 12/2022,  Volume: 78,  Issue: 2  |  DOI: 10.1111/jofi.13190  |  Cited by: 63

MIKHAIL CHERNOV, MAGNUS DAHLQUIST, LARS LOCHSTOER

The currency market features a small cross‐section, and conditional expected returns can be characterized by few signals: interest differential, trend, and mean reversion. We exploit these properties to construct the ex ante mean‐variance efficient portfolio of individual currencies. The portfolio is updated in real time and prices all prominent currency trading strategies, conditionally and unconditionally. The fraction of risk in these assets that does not affect their risk premiums is at least 85%. Extant explanations of carry strategies based on intermediary capital or global volatility are related to these unpriced components, while consumption growth is related to the priced component of returns.

Do Short‐Term Objectives Lead to Under‐ or Overinvestment in Long‐Term Projects?

Published: 6/1993,  Volume: 48,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1993.tb04735.x  |  Cited by: 235

LUCIAN ARYE BEBCHUK, LARS A. STOLE

We examine managerial investment decisions in the presence of imperfect information and short‐term managerial objectives. Prior research has argued that such an environment induces managers to underinvest in long‐run projects. We show that short‐term objectives and imperfect information may also lead to overinvestment, and we identify how the direction of the distortion depends upon the type of informational imperfection present. When investors cannot observe the level of investment in the long‐run project, suboptimal investment will be induced. When investors can observe investment but not its productivity, however, overinvestment will occur.

What Drives Anomaly Returns?

Published: 2/13/2020,  Volume: 75,  Issue: 3  |  DOI: 10.1111/jofi.12876  |  Cited by: 58

LARS A. LOCHSTOER, PAUL C. TETLOCK

We decompose the returns of five well‐known anomalies into cash flow and discount rate news. Common patterns emerge across the five factor portfolios and their mean‐variance efficient (MVE) combination. Whereas discount rate news predominates in market returns, systematic cash flow news drives the returns of anomaly portfolios and their MVE combination with the market portfolio. Anomaly cash flow and discount rate shocks are largely uncorrelated with market cash flow and discount rate shocks and with business cycle fluctuations. These rich empirical patterns restrict the joint dynamics of firm cash flows and the pricing kernel, thereby informing models of stocks' expected returns.

Heterogeneous Beliefs, Speculation, and the Equity Premium

Published: 1/10/2008,  Volume: 63,  Issue: 1  |  DOI: 10.1111/j.1540-6261.2008.01310.x  |  Cited by: 212

ALEXANDER DAVID

Agents with heterogeneous beliefs about fundamental growth do not share risks perfectly but instead speculate with each other on the relative accuracy of their models' predictions. They face the risk that market prices move more in line with the trading models of competing agents than with their own. Less risk‐averse agents speculate more aggressively and demand higher risk premiums. My calibrated model generates countercyclical consumption volatility, earnings forecast dispersion, and cross‐sectional consumption dispersion. With a risk aversion coefficient less than one, agents' speculation causes half the observed equity premium and lowers the riskless rate by about 1%.

THE EFFECT OF CAPITAL STRUCTURE ON THE COST OF CAPITAL*

Published: 9/1962,  Volume: 17,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1962.tb04328.x  |  Cited by: 0

Alexander Barges

Learning about Consumption Dynamics

Published: 3/18/2016,  Volume: 71,  Issue: 2  |  DOI: 10.1111/jofi.12246  |  Cited by: 100

MICHAEL JOHANNES, LARS A. LOCHSTOER, YIQUN MOU

This paper characterizes U.S. consumption dynamics from the perspective of a Bayesian agent who does not know the underlying model structure but learns over time from macroeconomic data. Realistic, high‐dimensional macroeconomic learning problems, which entail parameter, model, and state learning, generate substantially different subjective beliefs about consumption dynamics compared to the standard, full‐information rational expectations benchmark. Beliefs about long‐run dynamics are volatile, with counter‐cyclical conditional volatility, and drift over time. Embedding these beliefs in a standard asset pricing model significantly improves the model's ability to match the stylized facts, as well as the sample path of the market price‐dividend ratio.

REGIONAL INTEREST RATES: MUNICIPAL BONDS IN CALIFORNIA, 1900–1957*

Published: 9/1962,  Volume: 17,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1962.tb04307.x  |  Cited by: 0

David Alexander Baerncopf

Report of the Managing Editor of theJournal of Finance; Covering the Year 1973

Published: 5/1974,  Volume: 29,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1974.tb03084.x  |  Cited by: 0

ALEXANDER A. ROBICHEK

Report of the Managing Editor of theJournal of Finance Covering the Year 1971

Published: 5/1972,  Volume: 27,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1972.tb00983.x  |  Cited by: 0

Alexander A. Robichek

Report of the Managing Editor of theJournal of Finance Covering the Year 1972

Published: 5/1973,  Volume: 28,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1973.tb01806.x  |  Cited by: 0

Alexander A. Robichek

INTERPRETING THE RESULTS OF RISK ANALYSIS

Published: 12/1975,  Volume: 30,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1975.tb01065.x  |  Cited by: 5

Alexander A. Robichek

Short Selling and Efficient Sets

Published: 9/1993,  Volume: 48,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1993.tb04764.x  |  Cited by: 12

GORDON J. ALEXANDER

The effect of short selling on the composition and location of the efficient set has been analyzed in a variety of ways. However, the situation typically facing investors where the initial margin requirement is less than 100 percent and the riskfree interest rate that is paid on the short proceeds is less than the rate paid on initial margin has not previously been considered. The Elton‐Gruber‐Padberg algorithm (1976, 1978), subject to certain modifications, is shown here to be capable of identifying the efficient set under such conditions.

REGULATION AND MODERN FINANCE THEORY*

Published: 6/1978,  Volume: 33,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1978.tb02012.x  |  Cited by: 4

Alexander A. Robichek

Misspecified Recovery

Published: 11/10/2016,  Volume: 71,  Issue: 6  |  DOI: 10.1111/jofi.12404  |  Cited by: 130

JAROSLAV BOROVIČKA, LARS PETER HANSEN, JOSÉ A. SCHEINKMAN

Asset prices contain information about the probability distribution of future states and the stochastic discounting of those states as used by investors. To better understand the challenge in distinguishing investors' beliefs from risk‐adjusted discounting, we use Perron–Frobenius Theory to isolate a positive martingale component of the stochastic discount factor process. This component recovers a probability measure that absorbs long‐term risk adjustments. When the martingale is not degenerate, surmising that this recovered probability captures investors' beliefs distorts inference about risk‐return tradeoffs. Stochastic discount factors in many structural models of asset prices have empirically relevant martingale components.

Managerial Legacies, Entrenchment, and Strategic Inertia

Published: 11/9/2010,  Volume: 65,  Issue: 6  |  DOI: 10.1111/j.1540-6261.2010.01619.x  |  Cited by: 41

CATHERINE CASAMATTA, ALEXANDER GUEMBEL

This paper argues that the legacy potential of a firm's strategy is an important determinant of CEO compensation, turnover, and strategy change. A legacy makes CEO replacement expensive, because firm performance can only partially be attributed to a newly employed manager. Boards may therefore optimally allow an incumbent to be entrenched. Moreover, when a firm changes strategy it is optimal to change the CEO, because the incumbent has a vested interest in seeing the new strategy fail. Even though CEOs have no specific skills in our model, legacy issues can explain the empirical association between CEO and strategy change.

Private Benefits of Control: An International Comparison

Published: 3/25/2004,  Volume: 59,  Issue: 2  |  DOI: 10.1111/j.1540-6261.2004.00642.x  |  Cited by: 1813

Alexander Dyck, Luigi Zingales

We estimate private benefits of control in 39 countries using 393 controlling blocks sales. On average the value of control is 14 percent, but in some countries can be as low as −4 percent, in others as high a +65 percent. As predicted by theory, higher private benefits of control are associated with less developed capital markets, more concentrated ownership, and more privately negotiated privatizations. We also analyze what institutions are most important in curbing private benefits. We find evidence for both legal and extra‐legal mechanisms. In a multivariate analysis, however, media pressure and tax enforcement seem to be the dominating factors.

Taxes and Corporate Policies: Evidence from a Quasi Natural Experiment

Published: 1/19/2015,  Volume: 70,  Issue: 1  |  DOI: 10.1111/jofi.12101  |  Cited by: 134

CRAIG DOIDGE, ALEXANDER DYCK

We document important interactions between tax incentives and corporate policies using a “quasi natural experiment” provided by a surprise announcement that imposed corporate taxes on a group of Canadian publicly traded firms. The announcement caused a dramatic decrease in value. Prospective tax shields partially offset the losses, adding 4.6% to firm value on average, and vary with the tax status of the marginal investor. Further, firms adjust leverage, payout, cash holdings, and investment in response to changing tax incentives. Overall, the event study and time series evidence supports the view that taxes are important for corporate decision making.

The Value of Financial Flexibility

Published: 9/10/2008,  Volume: 63,  Issue: 5  |  DOI: 10.1111/j.1540-6261.2008.01397.x  |  Cited by: 590

ANDREA GAMBA, ALEXANDER TRIANTIS

We develop a model that endogenizes dynamic financing, investment, and cash retention/payout policies in order to analyze the effect of financial flexibility on firm value. We show that the value of financing flexibility depends on the costs of external financing, the level of corporate and personal tax rates that determine the effective cost of holding cash, the firm's growth potential and maturity, and the reversibility of capital. Through simulations, we demonstrate that firms facing financing frictions should simultaneously borrow and lend, and we examine the nature of dynamic debt and liquidity policies and the value associated with corporate liquidity.

Optimal Life‐Cycle Asset Allocation: Understanding the Empirical Evidence

Published: 3/2/2005,  Volume: 60,  Issue: 2  |  DOI: 10.1111/j.1540-6261.2005.00749.x  |  Cited by: 552

FRANCISCO GOMES, ALEXANDER MICHAELIDES

We show that a life‐cycle model with realistically calibrated uninsurable labor income risk and moderate risk aversion can simultaneously match stock market participation rates and asset allocation decisions conditional on participation. The key ingredients of the model are Epstein–Zin preferences, a fixed stock market entry cost, and moderate heterogeneity in risk aversion. Households with low risk aversion smooth earnings shocks with a small buffer stock of assets, and consequently most of them (optimally) never invest in equities. Therefore, the marginal stockholders are (endogenously) more risk averse, and as a result they do not invest their portfolios fully in stocks.

IPO Pricing in the Dot‐com Bubble

Published: 3/21/2003,  Volume: 58,  Issue: 2  |  DOI: 10.1111/1540-6261.00543  |  Cited by: 642

Alexander Ljungqvist, William J. Wilhelm

IPO underpricing reached astronomical levels during 1999 and 2000. We show that the regime shift in initial returns and other elements of pricing behavior can be at least partially accounted for by marked changes in pre‐IPO ownership structure and insider selling behavior over the period, which reduced key decision makers' incentives to control underpricing. After controlling for these changes, the difference in underpricing between 1999 and 2000 and the preceding three years is much reduced. Our results suggest that it was firm characteristics that were unique during the “dot‐com bubble” and that pricing behavior followed from incentives created by these characteristics.

Does Prospect Theory Explain IPO Market Behavior?

Published: 8/2005,  Volume: 60,  Issue: 4  |  DOI: 10.1111/j.1540-6261.2005.00779.x  |  Cited by: 131

ALEXANDER LJUNGQVIST, WILLIAM J. WILHELM

We derive a behavioral measure of the IPO decision‐maker's satisfaction with the underwriter's performance based on Loughran and Ritter (2002) and assess its ability to explain the decision‐maker's choice among underwriters in subsequent securities offerings. Controlling for other known factors, IPO firms are less likely to switch underwriters when our behavioral measure indicates they were satisfied with the IPO underwriter's performance. Underwriters also extract higher fees for subsequent transactions involving satisfied decision‐makers. Although our tests suggest that the behavioral model has explanatory power, they do not speak directly to whether deviations from expected utility maximization determine patterns in IPO initial returns.

Strategic and Financial Bidders in Takeover Auctions

Published: 11/10/2014,  Volume: 69,  Issue: 6  |  DOI: 10.1111/jofi.12194  |  Cited by: 162

ALEXANDER  S. GORBENKO, ANDREY MALENKO

Using data on auctions of companies, we estimate valuations (maximum willingness to pay) of strategic and financial bidders from their bids. We find that a typical target is valued higher by strategic bidders. However, 22.4% of targets in our sample are valued higher by financial bidders. These are mature, poorly performing companies. We also find that (i) valuations of different strategic bidders are more dispersed and (ii) valuations of financial bidders are correlated with aggregate economic conditions. Our results suggest that different targets appeal to different types of bidders, rather than that strategic bidders always value targets more because of synergies.

Auctions with Endogenous Initiation

Published: 12/4/2023,  Volume: 79,  Issue: 2  |  DOI: 10.1111/jofi.13288  |  Cited by: 12

ALEXANDER S. GORBENKO, ANDREY MALENKO

We study initiation of takeover auctions by potential buyers and the seller. A bidder's indication of interest reveals that she is optimistic about the target. If bidders' values have a substantial common component, as in takeover battles between financial bidders, this effect disincentivizes bidders from indicating interest, and auctions are seller‐initiated. Conversely, in private‐value auctions, such as battles between strategic bidders, equilibria can feature both seller‐ and bidder‐initiated auctions, with the likelihood of the latter decreasing in commonality of values and the probability of a forced sale by the seller. We also relate initiation to bids and auction outcomes.

Deposit Inflows and Outflows in Failing Banks: The Role of Deposit Insurance

Published: 1/21/2026,  Volume: 81,  Issue: 2  |  DOI: 10.1111/jofi.70007  |  Cited by: 8

CHRISTOPHER MARTIN, MANJU PURI, ALEXANDER UFIER

Using unique, daily, account‐level data, we investigate deposit outflows and inflows in a distressed bank. We observe an outflow of uninsured depositors following bad regulatory news. Both regular and temporary deposit insurance reduce outflows. We provide important new evidence that, simultaneous with deposit outflows, deposit inflows are first order. Uninsured deposit outflows were largely offset with new insured deposit inflows as the bank approached failure, with the bank increasing term deposit rates. This phenomenon holds in a large sample of banks that faced regulatory action, suggesting that insured deposit inflows are an important mechanism that weakens depositor discipline.

Who Blows the Whistle on Corporate Fraud?

Published: 11/9/2010,  Volume: 65,  Issue: 6  |  DOI: 10.1111/j.1540-6261.2010.01614.x  |  Cited by: 1625

ALEXANDER DYCK, ADAIR MORSE, LUIGI ZINGALES

To identify the most effective mechanisms for detecting corporate fraud, we study all reported fraud cases in large U.S. companies between 1996 and 2004. We find that fraud detection does not rely on standard corporate governance actors (investors, SEC, and auditors), but rather takes a village, including several nontraditional players (employees, media, and industry regulators). Differences in access to information, as well as monetary and reputational incentives, help to explain this pattern. In‐depth analyses suggest that reputational incentives in general are weak, except for journalists in large cases. By contrast, monetary incentives help explain employee whistleblowing.

Don't Believe the Hype: Local Media Slant, Local Advertising, and Firm Value

Published: 3/27/2012,  Volume: 67,  Issue: 2  |  DOI: 10.1111/j.1540-6261.2012.01725.x  |  Cited by: 562

UMIT G. GURUN, ALEXANDER W. BUTLER

When local media report news about local companies, they use fewer negative words compared to the same media reporting about nonlocal companies. We document that one reason for this positive slant is the firms' local media advertising expenditures. Abnormal positive local media slant strongly relates to firm equity values. The effect is stronger for small firms; firms held predominantly by individual investors; and firms with illiquid or highly volatile stock, low analyst following, or high dispersion of analyst forecasts. These findings show that news content varies systematically with the characteristics and conflicts of interest of the source.

The Corporate Governance Role of the Media: Evidence from Russia

Published: 5/9/2008,  Volume: 63,  Issue: 3  |  DOI: 10.1111/j.1540-6261.2008.01353.x  |  Cited by: 1235

ALEXANDER DYCK, NATALYA VOLCHKOVA, LUIGI ZINGALES

We study the effect of media coverage on corporate governance by focusing on Russia in the period 1999 to 2002. We find that an investment fund's lobbying increases coverage of corporate governance violations in the Anglo‐American press. We also find that coverage in the Anglo‐American press increases the probability that a corporate governance violation is reversed. This effect is present even when we instrument coverage with an exogenous determinant, the fund's portfolio composition at the beginning of the period. The fund's strategy seems to work in part by impacting Russian companies' reputation abroad and in part by forcing regulators into action.

More on Estimation Risk and Simple Rules for Optimal Portfolio Selection

Published: 3/1985,  Volume: 40,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1985.tb04940.x  |  Cited by: 21

GORDON J. ALEXANDER, BRUCE G. RESNICK

For the risk‐averse investor, consideration of estimation risk is important in selecting an expected‐utility‐maximizing portfolio. It has previously been shown that the composition of the tangency portfolio is unaffected by the recognition of estimation risk if the Full Covariance Model is used. Alternatively, if the Market Model is used, the composition of the tangency portfolio has been shown to be affected by the recognition of estimation risk. However, as is demonstrated in this paper, the effect will generally not be as substantive as previously believed and in many situations can be safely ignored.

CONCEPTUAL PROBLEMS IN THE USE OF RISK‐ADJUSTED DISCOUNT RATES*

Published: 12/1966,  Volume: 21,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1966.tb00277.x  |  Cited by: 48

Alexander A. Robichek, Stewart C. Myers

Equilibrium Portfolio Strategies in the Presence of Sentiment Risk and Excess Volatility

Published: 3/13/2009,  Volume: 64,  Issue: 2  |  DOI: 10.1111/j.1540-6261.2009.01444.x  |  Cited by: 351

BERNARD DUMAS, ALEXANDER KURSHEV, RAMAN UPPAL

Our objective is to identify the trading strategy that would allow an investor to take advantage of “excessive” stock price volatility and “sentiment” fluctuations. We construct a general equilibrium “difference‐of‐opinion” model of sentiment in which there are two classes of agents, one of which is overconfident about a public signal, while still optimizing intertemporally. Overconfident investors overreact to the signal and introduce an additional risk factor causing stock prices to be excessively volatile. Consequently, rational investors choose a conservative portfolio; moreover, this portfolio depends not just on the current price divergence but also on their prediction about future sentiment and the speed of price convergence.

Relative Significance of Journals, Authors, and Articles Cited in Financial Research

Published: 6/1994,  Volume: 49,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1994.tb05158.x  |  Cited by: 153

JOHN C. ALEXANDER, RODNEY H. MABRY

We evaluate journals based on their relative contributions to top‐level finance research in a recent period. Journals are ranked according to the number of citations found in articles published in Journal of Finance, Journal of Financial Economics, Journal of Financial and Quantitative Analysis, and Review of Financial Studies. The analysis controls for both the average number of articles and average number of words published annually in each cited journal. We identify the fifty most frequently cited journals during this period. We also list the fifty most frequently cited authors and articles and note topical trends in the research.

Interactions of Corporate Financing and Investment Decisions: A Dynamic Framework

Published: 9/1994,  Volume: 49,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1994.tb02453.x  |  Cited by: 244

DAVID C. MAUER, ALEXANDER J. TRIANTIS

This article analyzes the interaction between a firm's dynamic investment, operating, and financing decisions in a model with operating adjustment and recapitalization costs. Using numerical analysis, we solve the model for cases that highlight interaction effects. We find that higher production flexibility (due to lower costs of shutting down and reopening a production facility) enhances the firm's debt capacity, thereby increasing the net tax shield value of debt financing. While higher financial flexibility (resulting from lower recapitalization costs) has a similar effect, production flexibility and financial flexibility are, to some extent, substitutes. We find that the impact of debt financing on the firm's investment and operating decisions is economically insignificant.

Valuing Flexibility as a Complex Option

Published: 6/1990,  Volume: 45,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1990.tb03702.x  |  Cited by: 204

ALEXANDER J. TRIANTIS, JAMES E. HODDER

This paper develops an approach for valuing flexible production systems using contingent claims pricing. Demand curves for our model's underlying assets (output products) may be downward sloping, in contrast with the standard option pricing assumption. Also, our marginal production(exercise) costs may be increasing. In addition, we allow for multiple products and a production capacity constraint. These elements of the model result in complex exercise decisions for the contingent claims which comprise the production system's value. We illustrate our approach by valuing a flexible system that produces two products which have profit margin functions with stochastic parameters.

VALUATION OF THE FIRM: EFFECTS OF UNCERTAINTY IN A MARKET CONTEXT

Published: 5/1966,  Volume: 21,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1966.tb00222.x  |  Cited by: 33

Alexander A. Robichek, Stewart C. Myers

Interest Rates and Inflationary Expectations: Tests For Structural Change 1952–1976

Published: 6/1979,  Volume: 34,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1979.tb02138.x  |  Cited by: 2

ALEXANDER B. HOLMES, MYRON L. KWAST

Rewriting History

Published: 7/16/2009,  Volume: 64,  Issue: 4  |  DOI: 10.1111/j.1540-6261.2009.01484.x  |  Cited by: 170

ALEXANDER LJUNGQVIST, CHRISTOPHER MALLOY, FELICIA MARSTON

We document widespread changes to the historical I/B/E/S analyst stock recommendations database. Across seven I/B/E/S downloads, obtained between 2000 and 2007, we find that between 6,580 (1.6%) and 97,582 (21.7%) of matched observations are different from one download to the next. The changes include alterations of recommendations, additions and deletions of records, and removal of analyst names. These changes are nonrandom, clustering by analyst reputation, broker size and status, and recommendation boldness, and affect trading signal classifications and back‐tests of three stylized facts: profitability of trading signals, profitability of consensus recommendation changes, and persistence in individual analyst stock‐picking ability.

Monitoring Managers: Does It Matter?

Published: 3/7/2013,  Volume: 68,  Issue: 2  |  DOI: 10.1111/jofi.12004  |  Cited by: 209

FRANCESCA CORNELLI, ZBIGNIEW KOMINEK, ALEXANDER LJUNGQVIST

We study how well‐incentivized boards monitor CEOs and whether monitoring improves performance. Using unique, detailed data on boards' information sets and decisions for a large sample of private equity–backed firms, we find that gathering information helps boards learn about CEO ability. “Soft” information plays a much larger role than hard data, such as the performance metrics that prior literature focuses on, and helps avoid firing a CEO for bad luck or in response to adverse external shocks. We show that governance reforms increase the effectiveness of board monitoring and establish a causal link between forced CEO turnover and performance improvements.

A NOTE ON THE BEHAVIOR OF EXPECTED PRICE/EARNINGS RATIOS OVER TIME

Published: 6/1971,  Volume: 26,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1971.tb01726.x  |  Cited by: 5

Alexander A. Robichek, Marcus C. Bogue

TAX‐INDUCED BIAS IN REPORTED TREASURY YIELDS*

Published: 12/1970,  Volume: 25,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1970.tb00869.x  |  Cited by: 4

Alexander A. Robichek, W. David Niebuhr

Investor Sentiment and Pre‐IPO Markets

Published: 5/16/2006,  Volume: 61,  Issue: 3  |  DOI: 10.1111/j.1540-6261.2006.00870.x  |  Cited by: 325

FRANCESCA CORNELLI, DAVID GOLDREICH, ALEXANDER LJUNGQVIST

We examine whether irrational behavior among small (retail) investors drives post‐IPO prices. We use prices from the grey market (the when‐issued market that precedes European IPOs) to proxy for small investors' valuations. High grey market prices (indicating overoptimism) are a very good predictor of first‐day aftermarket prices, while low grey market prices (indicating excessive pessimism) are not. Moreover, we find long‐run price reversal only following high grey market prices. This asymmetry occurs because larger (institutional) investors can choose between keeping the shares they are allocated in the IPO, and reselling them when small investors are overoptimistic.

The Executive Turnover Risk Premium

Published: 7/18/2014,  Volume: 69,  Issue: 4  |  DOI: 10.1111/jofi.12166  |  Cited by: 373

FLORIAN S. PETERS, ALEXANDER F. WAGNER

We establish that CEOs of companies experiencing volatile industry conditions are more likely to be dismissed. At the same time, accounting for various other factors, industry risk is unlikely to be associated with CEO compensation other than through dismissal risk. Using this identification strategy, we document that CEO turnover risk is significantly positively associated with compensation. This finding is important because job‐risk‐compensating wage differentials arise naturally in competitive labor markets. By contrast, the evidence rejects an entrenchment model according to which powerful CEOs have lower job risk and at the same time secure higher compensation.

Deviations from Covered Interest Rate Parity

Published: 5/24/2018,  Volume: 73,  Issue: 3  |  DOI: 10.1111/jofi.12620  |  Cited by: 575

WENXIN DU, ALEXANDER TEPPER, ADRIEN VERDELHAN

We find that deviations from the covered interest rate parity (CIP) condition imply large, persistent, and systematic arbitrage opportunities in one of the largest asset markets in the world. Contrary to the common view, these deviations for major currencies are not explained away by credit risk or transaction costs. They are particularly strong for forward contracts that appear on banks' balance sheets at the end of the quarter, pointing to a causal effect of banking regulation on asset prices. The CIP deviations also appear significantly correlated with other fixed income spreads and with nominal interest rates.