The Journal of Finance

Corporate Diversification and the Cost of Capital

Published: 9/10/2013,  Volume: 68,  Issue: 5  |  DOI: 10.1111/jofi.12067  |  Cited by: 286

REBECCA N. HANN, MARIA OGNEVA, OGUZHAN OZBAS

We examine whether organizational form matters for a firm's cost of capital. Contrary to the conventional view, we argue that coinsurance among a firm's business units can reduce systematic risk through the avoidance of countercyclical deadweight costs. We find that diversified firms have, on average, a lower cost of capital than comparable portfolios of stand‐alone firms. In addition, diversified firms with less correlated segment cash flows have a lower cost of capital, consistent with a coinsurance effect. Holding cash flows constant, our estimates imply an average value gain of approximately 5% when moving from the highest to the lowest cash flow correlation quintile.

Default Risk in Equity Returns

Published: 3/25/2004,  Volume: 59,  Issue: 2  |  DOI: 10.1111/j.1540-6261.2004.00650.x  |  Cited by: 1418

Maria Vassalou, Yuhang Xing

This is the first study that uses Merton's (1974) option pricing model to compute default measures for individual firms and assess the effect of default risk on equity returns. The size effect is a default effect, and this is also largely true for the book‐to‐market (BM) effect. Both exist only in segments of the market with high default risk. Default risk is systematic risk. The Fama–French (FF) factors SMB and HML contain some default‐related information, but this is not the main reason that the FF model can explain the cross section of equity returns.

The Vote Is Cast: The Effect of Corporate Governance on Shareholder Value

Published: 9/12/2012,  Volume: 67,  Issue: 5  |  DOI: 10.1111/j.1540-6261.2012.01776.x  |  Cited by: 378

VICENTE CUÑAT, MIREIA GINE, MARIA GUADALUPE

This paper investigates whether improvements in the firm's internal corporate governance create value for shareholders. We analyze the market reaction to governance proposals that pass or fail by a small margin of votes in annual meetings. This provides a clean causal estimate that deals with the endogeneity of internal governance rules. We find that passing a proposal leads to significant positive abnormal returns. Adopting one governance proposal increases shareholder value by 2.8%. The market reaction is larger in firms with more antitakeover provisions, higher institutional ownership, and stronger investor activism for proposals sponsored by institutions. In addition, we find that acquisitions and capital expenditures decline and long‐term performance improves.

Price and Probability: Decomposing the Takeover Effects of Anti‐Takeover Provisions

Published: 5/12/2020,  Volume: 75,  Issue: 5  |  DOI: 10.1111/jofi.12908  |  Cited by: 28

VICENTE CUÑAT, MIREIA GINÉ, MARIA GUADALUPE

We study the effects of anti‐takeover provisions (ATPs) on the takeover probability, the takeover premium, and target selection. Voting to remove an ATP increases both the takeover probability and the takeover premium, that is, there is no evidence of a trade‐off between premiums and takeover probabilities. We provide causal estimates based on shareholder proposals to remove ATPs and address the endogenous selection of targets through bounding techniques. The positive premium effect in less protected firms is driven by better bidder‐target matching and merger synergies.

Information and Incentives Inside the Firm: Evidence from Loan Officer Rotation

Published: 5/7/2010,  Volume: 65,  Issue: 3  |  DOI: 10.1111/j.1540-6261.2010.01553.x  |  Cited by: 239

ANDREW HERTZBERG, JOSE MARIA LIBERTI, DANIEL PARAVISINI

We present evidence that reassigning tasks among agents can alleviate moral hazard in communication. A rotation policy that routinely reassigns loan officers to borrowers of a commercial bank affects the officers' reporting behavior. When an officer anticipates rotation, reports are more accurate and contain more bad news about the borrower's repayment prospects. As a result, the rotation policy makes bank lending decisions more sensitive to officer reports. The threat of rotation improves communication because self‐reporting bad news has a smaller negative effect on an officer's career prospects than bad news exposed by a successor.

Access to Collateral and the Democratization of Credit: France's Reform of the Napoleonic Security Code

Published: 11/18/2019,  Volume: 75,  Issue: 1  |  DOI: 10.1111/jofi.12846  |  Cited by: 62

KEVIN ARETZ, MURILLO CAMPELLO, MARIA‐TERESA MARCHICA

France's Ordonnance 2006‐346 repudiated the notion of possessory ownership in the Napoleonic Code, easing the pledge of physical assets in a country where credit was highly concentrated. A differences‐test strategy shows that firms operating newly pledgeable assets significantly increased their borrowing following the reform. Small, young, and financially constrained businesses benefitted the most, observing improved credit access and real‐side outcomes. Start‐ups emerged with higher “at‐inception” leverage, located farther from large cities, with more assets‐in‐place than before. Their exit and bankruptcy rates declined. Spatial analyses show that the reform reached firms in rural areas, reducing credit access inequality across France's countryside.

Do Depositors Punish Banks for Bad Behavior? Market Discipline, Deposit Insurance, and Banking Crises

Published: 6/2001,  Volume: 56,  Issue: 3  |  DOI: 10.1111/0022-1082.00354  |  Cited by: 549

Maria Soledad Martinez Peria, Sergio L. Schmukler

This paper empirically investigates two issues largely unexplored by the literature on market discipline. We evaluate the interaction between market discipline and deposit insurance and the impact of banking crises on market discipline. We focus on the experiences of Argentina, Chile, and Mexico during the 1980s and 1990s. We find that depositors discipline banks by withdrawing deposits and by requiring higher interest rates. Deposit insurance does not appear to diminish the extent of market discipline. Aggregate shocks affect deposits and interest rates during crises, regardless of bank fundamentals, and investors' responsiveness to bank risk taking increases in the aftermath of crises.

Pricing of Climate Risk Insurance: Regulation and Cross‐Subsidies

Published: 3/16/2026,  Volume: 81,  Issue: 3  |  DOI: 10.1111/jofi.70029  |  Cited by: 10

SANGMIN S. OH, ISHITA SEN, ANA‐MARIA TENEKEDJIEVA

Homeowners insurance is central to managing the rising losses from climate‐related disasters. We show that insurance premiums are subject to starkly different regulations across states, creating persistent cross‐subsidies and price distortions. We employ states' regulatory rules in an instrumental variable estimation and a border discontinuity design to show insurers do not adjust rates in highly regulated states and compensate by raising rates in less regulated states. Rates and risks diverge in the long run, distorting cross‐state risk‐sharing and increasing insurer exits from highly regulated states. We argue these patterns stem from the interactions between rate regulation and insurers' financing constraints.