The Journal of Finance

The Leasing Puzzle

Published: 09/01/1984   |   DOI: 10.1111/j.1540-6261.1984.tb03892.x

JAMES ANG, PAMELA P. PETERSON

Prevailing theories in finance and economics suggest that leases and debt are substitutes; an increase in one should led to a compensating decrease in the other. In particular, there are three views on the magnitude of the substitution coefficient. Standard finance theory treats cash flows from lease obligations as equivalent to debt cash flows, thus describing the tradeoff between debt and leases as one‐to‐one. Others are willing to use a tradeoff of leases for debt which is less than, but close to, one. The rationale for a dollar of leases using less of debt capacity than a dollar of debt obligation is based upon the differences in the terms and nature of lease and debt contracts. Finally, there are some who argue that since leased assets may be firm‐specific, the risk of moral hazard may be great, resulting in a tradeoff of greater than one‐to‐one; that is, a dollar of a lease obligation uses more of debt capacity than a dollar of a debt obligation.

Marginal Tax Rates: Evidence from Nontaxable Corporate Bonds: A Note

Published: 03/01/1985   |   DOI: 10.1111/j.1540-6261.1985.tb04953.x

JAMES ANG, DAVID PETERSON, PAMELA PETERSON

This study offers an alternative method of calculating marginal personal tax rates through the pairing of nontaxable (industrial development and pollution control) and taxable corporate bonds. This procedure is shown to produce matched bond pairs that are comparable. Two hundred pairs of bonds are examined from the second quarter of 1973 through the second quarter of 1983. Testing of the marginal tax rate relationships indicates that the marginal personal tax rate is less than the corporate statutory tax rate.

Shelf Registrations and Shareholder Wealth: A Comparison of Shelf and Traditional Equity Offerings

Published: 06/01/1986   |   DOI: 10.1111/j.1540-6261.1986.tb05048.x

NORMAN H. MOORE, DAVID R. PETERSON, PAMELA P. PETERSON

This study examines the effect of issuing common stock on shareholder wealth under two alternative methods of registration, shelf registration under the Securities and Exchange Commission's Rule 415 and the traditional method of registering shares for immediate sale. The stock price reactions accompanying security registrations and offerings over the period from March 1982 through November 1983 are examined for over two hundred issues. A negative price reaction is observed for traditional and shelf registrations for both utility and non‐utility issuers. No statistically significant difference is observed between shelf and traditional registrations. Further negative price reactions precede the offerings of these securities.

Time Variation in Liquidity: The Role of Market‐Maker Inventories and Revenues

Published: 01/13/2010   |   DOI: 10.1111/j.1540-6261.2009.01530.x

CAROLE COMERTON‐FORDE, TERRENCE HENDERSHOTT, CHARLES M. JONES, PAMELA C. MOULTON, MARK S. SEASHOLES

We show that market‐maker balance sheet and income statement variables explain time variation in liquidity, suggesting liquidity‐supplier financing constraints matter. Using 11 years of NYSE specialist inventory positions and trading revenues, we find that aggregate market‐level and specialist firm‐level spreads widen when specialists have large positions or lose money. The effects are nonlinear and most prominent when inventories are big or trading results have been particularly poor. These sensitivities are smaller after specialist firm mergers, consistent with deep pockets easing financing constraints. Finally, compared to low volatility stocks, the liquidity of high volatility stocks is more sensitive to inventories and losses.

Asymmetric Learning from Financial Information

Published: 10/27/2014   |   DOI: 10.1111/jofi.12223

CAMELIA M. KUHNEN

This study asks whether investors learn differently from gains versus losses. I find experimental evidence that indicates that being in the negative domain leads individuals to form overly pessimistic beliefs about available investment options. This pessimism bias is driven by people reacting more to low outcomes in the negative domain relative to the positive domain. Such asymmetric learning may help explain documented empirical patterns regarding the differential role of poor versus good economic conditions on investment behavior and household economic choices.

Business Networks, Corporate Governance, and Contracting in the Mutual Fund Industry

Published: 09/28/2009   |   DOI: 10.1111/j.1540-6261.2009.01498.x

CAMELIA M. KUHNEN

Business connections can mitigate agency conflicts by facilitating efficient information transfers, but can also be channels for inefficient favoritism. I analyze these two effects in the mutual fund industry and find that fund directors and advisory firms that manage the funds hire each other preferentially based on the intensity of their past interactions. I do not find evidence that stronger board‐advisor ties correspond to better or worse outcomes for fund shareholders. These results suggest that the two effects of board‐management connections on investor welfare—improved monitoring and increased potential for collusion—balance out in this setting.

Noncognitive Abilities and Financial Delinquency: The Role of Self‐Efficacy in Avoiding Financial Distress

Published: 09/23/2018   |   DOI: 10.1111/jofi.12724

CAMELIA M. KUHNEN, BRIAN T. MELZER

We investigate a novel determinant of financial distress, namely, individuals' self‐efficacy, or belief that their actions can influence the future. Individuals with high self‐efficacy are more likely to take precautions that mitigate adverse financial shocks. They are subsequently less likely to default on their debt and bill payments, especially after experiencing negative shocks such as job loss or illness. Thus, noncognitive abilities are an important determinant of financial fragility and subjective expectations are an important factor in household financial decisions.