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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Disagreements among Shareholders over a Firm's Disclosure Policy
Published: 06/01/1993 | DOI: 10.1111/j.1540-6261.1993.tb04737.x
OLIVER KIM
This paper examines the issue of voluntary disclosure of information by firms with heterogeneous shareholders. It shows that in a rational expectations setting, better informed shareholders prefer less disclosure than less well‐informed shareholders. This is due to differences in the adverse risk‐sharing effect and the beneficial cost‐saving effect of disclosure among shareholders with different risk tolerances and information acquisition cost functions. The presence of individual liquidity shocks is shown to reduce shareholder disagreements regarding a firm's disclosure policy.
The Errors in the Variables Problem in the Cross‐Section of Expected Stock Returns
Published: 12/01/1995 | DOI: 10.1111/j.1540-6261.1995.tb05190.x
DONGCHEOL KIM
Recent research has documented the failure of market beta to capture the cross‐section of expected returns within the context of a two‐pass estimation methodology. However, the two‐pass methodology suffers from the errors‐in‐variables (EIV) problem that could attenuate the apparent significance of market beta. This article provides a new correction for the EIV problem that is robust to conditional heteroscedasticity. After the correction, I find more support for the role of market beta and less support for the role of firm size in explaining the cross‐section of expected returns. While the EIV correction leads to a diminished role of firm size, the size variable remains a significant force in explaining the cross‐section of expected returns.
Convertible Bond Design and Capital Investment: The Role of Call Provisions
Published: 11/27/2005 | DOI: 10.1111/j.1540-6261.2004.00636.x
Timo P. Korkeamaki, William T. Moore
If firms issue convertible securities to facilitate sequential investment, the securities should be engineered to give sufficient flexibility to accommodate timing of follow‐on investment. We examine call provisions in convertible bonds and argue that firms with investment options expected to expire sooner (later) will offer weaker (stronger) call protection. We find that issues with weak or no call protection are offered by firms that invest greater amounts soon after issuance than those issuing convertibles with strong protection. Moreover, capital expenditure levels during the 5‐year period following issuance are inversely related to the length of call‐protection periods.
To Steal or Not to Steal: Firm Attributes, Legal Environment, and Valuation
Published: 05/03/2005 | DOI: 10.1111/j.1540-6261.2005.00767.x
ART DURNEV, E. HAN KIM
Data on corporate governance and disclosure practices reveal wide within‐country variation that decreases with the strength of investors' legal protection. A simple model identifies three firm attributes related to that variation: investment opportunities, external financing, and ownership structure. Using firm‐level governance and transparency data from 27 countries, we find that all three firm attributes are related to the quality of governance and disclosure practices, and firms with higher governance and transparency rankings are valued higher in stock markets. All relations are stronger in less investor‐friendly countries, demonstrating that firms adapt to poor legal environments to establish efficient governance practices.
Buyer–Supplier Relationships and the Stakeholder Theory of Capital Structure
Published: 09/10/2008 | DOI: 10.1111/j.1540-6261.2008.01403.x
SHANTANU BANERJEE, SUDIPTO DASGUPTA, YUNGSAN KIM
Firms in bilateral relationships are likely to produce or procure unique products—especially when they are in durable goods industries. Consistent with the arguments of Titman and Titman and Wessels, such firms are likely to maintain lower leverage. We compile a database of firms' principal customers (those that account for at least 10% of sales or are otherwise considered important for business) from the Business Information File of Compustat and find results consistent with the predictions of this theory.
The Declining Credit Quality of U.S. Corporate Debt: Myth or Reality?
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00057
Marshall E. Blume, Felix Lim, A. Craig Mackinlay
In recent years, the number of downgrades in corporate bond ratings has exceeded the number of upgrades, leading some to conclude that the credit quality of U.S. corporate debt has declined. However, an alternative explanation of this apparent decline in credit quality is that the rating agencies are now using more stringent standards in assigning ratings. An ordered probit analysis of a panel of firms from 1978 through 1995 suggests that rating standards have indeed become more stringent, implying that at least part of the downward trend in ratings is the result of changing standards.
CEO Connectedness and Corporate Fraud
Published: 01/27/2015 | DOI: 10.1111/jofi.12243
VIKRAMADITYA KHANNA, E. HAN KIM, YAO LU
We find that connections CEOs develop with top executives and directors through their appointment decisions increase the risk of corporate fraud. Appointment‐based CEO connectedness in executive suites and boardrooms increases the likelihood of committing fraud and decreases the likelihood of detection. Additionally, it decreases the expected costs of fraud by helping conceal fraudulent activity, making CEO dismissal less likely upon discovery, and lowering the coordination costs of carrying out illegal activity. Connections based on network ties through past employment, education, or social organization memberships have insignificant effects on fraud. Appointment‐based CEO connectedness warrants attention from regulators, investors, and corporate governance specialists.
Rising Intangible Capital, Shrinking Debt Capacity, and the U.S. Corporate Savings Glut
Published: 08/19/2022 | DOI: 10.1111/jofi.13174
ANTONIO FALATO, DALIDA KADYRZHANOVA, JAE SIM, ROBERTO STERI
This paper explores the connection between rising intangible capital and the secular upward trend in U.S. corporate cash holdings. We calibrate a dynamic model with two productive assets—tangible and intangible capital—in which only tangible capital can serve as collateral. We highlight the following points: (i) a shift toward intangible capital shrinks firms' debt capacity and leads them to hold more cash, (ii) the effect accounts for three‐quarters of the observed trend in average cash ratios, and (iii) it also accounts for the upward trend of cash ratios in the cross‐section of small and large firms and in the aggregate.
DISCUSSION
Published: 06/01/1978 | DOI: 10.1111/j.1540-6261.1978.tb00767.x
E. Han Kim
The Impact of Merger Bids on the Participating Firms' Security Holders
Published: 12/01/1982 | DOI: 10.1111/j.1540-6261.1982.tb03613.x
PAUL ASQUITH, E. HAN KIM
This paper investigates whether merger bids have an impact on the wealth of the participating firms' bondholders and stockholders. Monthly and daily bond and stock returns are calculated relative to the announcement date of a merger bid for a sample of conglomerate mergers. The results show that while the stockholders of target firms gain from a merger bid, no other securityholders either gain or lose. To provide direct evidence on the existence of “diversification effects” and “incentive effects,” we test whether the bondholders' returns are dependent upon the correlation between the returns of the merging firms and whether the size of the bondholders' and stockholders' returns in individual mergers are correlated. The results are consistent with a capital market that efficiently resolves conflicts of interest between stockholders and bondholders.