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: 10.
How Does Financing Impact Investment? The Role of Debt Covenants
Published: 09/10/2008 | DOI: 10.1111/j.1540-6261.2008.01391.x
SUDHEER CHAVA, MICHAEL R. ROBERTS
We identify a specific channel (debt covenants) and the corresponding mechanism (transfer of control rights) through which financing frictions impact corporate investment. Using a regression discontinuity design, we show that capital investment declines sharply following a financial covenant violation, when creditors use the threat of accelerating the loan to intervene in management. Further, the reduction in investment is concentrated in situations in which agency and information problems are relatively more severe, highlighting how the state‐contingent allocation of control rights can help mitigate investment distortions arising from financing frictions.
Control Rights and Capital Structure: An Empirical Investigation
Published: 07/16/2009 | DOI: 10.1111/j.1540-6261.2009.01476.x
MICHAEL R. ROBERTS, AMIR SUFI
We show that incentive conflicts between firms and their creditors have a large impact on corporate debt policy. Net debt issuing activity experiences a sharp and persistent decline following debt covenant violations, when creditors use their acceleration and termination rights to increase interest rates and reduce the availability of credit. The effect of creditor actions on debt policy is strongest when the borrower's alternative sources of finance are costly. In addition, despite the less favorable terms offered by existing creditors, borrowers rarely switch lenders following a violation.
Do Peer Firms Affect Corporate Financial Policy?
Published: 08/22/2013 | DOI: 10.1111/jofi.12094
MARK T. LEARY, MICHAEL R. ROBERTS
We show that peer firms play an important role in determining corporate capital structures and financial policies. In large part, firms' financing decisions are responses to the financing decisions and, to a lesser extent, the characteristics of peer firms. These peer effects are more important for capital structure determination than most previously identified determinants. Furthermore, smaller, less successful firms are highly sensitive to their larger, more successful peers, but not vice versa. We also quantify the externalities generated by peer effects, which can amplify the impact of changes in exogenous determinants on leverage by over 70%.
Do Firms Rebalance Their Capital Structures?
Published: 11/10/2005 | DOI: 10.1111/j.1540-6261.2005.00811.x
MARK T. LEARY, MICHAEL R. ROBERTS
We empirically examine whether firms engage in a dynamic rebalancing of their capital structures while allowing for costly adjustment. We begin by showing that the presence of adjustment costs has significant implications for corporate financial policy and the interpretation of previous empirical results. After confirming that financing behavior is consistent with the presence of adjustment costs, we find that firms actively rebalance their leverage to stay within an optimal range. Our evidence suggests that the persistent effect of shocks on leverage observed in previous studies is more likely due to adjustment costs than indifference toward capital structure.
CLO Performance
Published: 03/21/2023 | DOI: 10.1111/jofi.13224
LARRY CORDELL, MICHAEL R. ROBERTS, MICHAEL SCHWERT
We study the performance of collateralized loan obligations (CLOs) to understand the market imperfections giving rise to these vehicles and their corresponding economic costs. CLO equity tranches earn positive abnormal returns from the risk‐adjusted price differential between leveraged loans and CLO debt tranches. Debt tranches offer higher returns than similarly rated corporate bonds, making them attractive to banks and insurers that face risk‐based capital requirements. Temporal variation in equity performance highlights the resilience of CLOs to market volatility due to their closed‐end structure, long‐term funding, and embedded options to reinvest principal proceeds.
Do Price Discreteness and Transactions Costs Affect Stock Returns? Comparing Ex‐Dividend Pricing before and after Decimalization
Published: 11/07/2003 | DOI: 10.1046/j.1540-6261.2003.00617.x
John R. Graham, Roni Michaely, Michael R. Roberts
By the end of January 2001, all NYSE stocks had converted their price quotations from 1/8s and 1/16s to decimals. This study examines the effect of this change in price quotations on ex‐dividend day activity. We find that abnormal ex‐dividend day returns increase in the 1/16 and decimal pricing eras, relative to the 1/8 era, which is inconsistent with microstructure explanations of ex‐day price movements. We also find that abnormal returns increase in conjunction with a May 1997 reduction in the capital gains tax rate, as they should if relative taxation of dividends and capital gains affects ex‐day pricing.
Back to the Beginning: Persistence and the Cross‐Section of Corporate Capital Structure
Published: 07/19/2008 | DOI: 10.1111/j.1540-6261.2008.01369.x
MICHAEL L. LEMMON, MICHAEL R. ROBERTS, JAIME F. ZENDER
We find that the majority of variation in leverage ratios is driven by an unobserved time‐invariant effect that generates surprisingly stable capital structures: High (low) levered firms tend to remain as such for over two decades. This feature of leverage is largely unexplained by previously identified determinants, is robust to firm exit, and is present prior to the IPO, suggesting that variation in capital structures is primarily determined by factors that remain stable for long periods of time. We then show that these results have important implications for empirical analysis attempting to understand capital structure heterogeneity.
On the Importance of Measuring Payout Yield: Implications for Empirical Asset Pricing
Published: 03/20/2007 | DOI: 10.1111/j.1540-6261.2007.01226.x
JACOB BOUDOUKH, RONI MICHAELY, MATTHEW RICHARDSON, MICHAEL R. ROBERTS
We investigate the empirical implications of using various measures of payout yield rather than dividend yield for asset pricing models. We find statistically and economically significant predictability in the time series when payout (dividends plus repurchases) and net payout (dividends plus repurchases minus issuances) yields are used instead of the dividend yield. Similarly, we find that payout (net payout) yields contains information about the cross section of expected stock returns exceeding that of dividend yields, and that the high minus low payout yield portfolio is a priced factor.