Corporate Finance

This paper examines listed companies in the US and Europe with market capitalizations less than the book value of equity in the years immediately before and after the global financial crisis of 2008. The paper documents a higher percentage of companies in the (European) STOXX 600 with market capitalization less than book value than in the (US) S&P 500. Further, the negative difference between market and book value is larger for European companies and more persistent over time. The paper seeks explanations for the differences.

We study the decisions by targets in private equity and MBO transactions whether to actively shop executed merger agreements prior to shareholder approval. Specifically, targets can negotiate for a go-shop clause, which permits the solicitation of offers from other would-be acquirors during the go-shop window and, in certain circumstances, lowers the termination fee paid by the target in the event of a competing bid.

Proximity to plants makes it easier for headquarters to monitor and acquire information about plants. In this article, I estimate the effects of headquarters' proximity to plants on plant-level investment and productivity. Using the introduction of new airline routes as a source of exogenous variation in proximity, I find that new airline routes that reduce the travel time between headquarters and plants lead to an increase in plant-level investment of 8% to 9% and an increase in plants' total factor productivity of 1.3% to 1.4%.

Using data from a major mortgage bank, we examine the predictive power of mortgage delinquency models as an aggregate measure of the quality of information recorded at loan origination. We measure model predictive power using an out-of-sample prediction criterion and compare predictive power of delinquency models over time and across loans of different documentation levels and origination channels.

Substantial evidence suggests that discount factors vary significantly between individuals and that this variation exists between members of the same household. This paper introduces a model of consumption and savings in which household members discount the utility from their future consumption at different rates. Each period household members bargain efficiently over their consumption and saving choices.

This paper explores how academics and regulators might approach the task of developing a conceptual framework for financial accounting policy. It does so against a backdrop of a short history of accounting thought that lays out approaches that have been taken in the past and evaluates their impact. With the lessons from history recognized, the paper then offers a number of suggestions to be considered as we go forward. Some of these suggestions come from research. Some come from taking a utilitarian perspective on accounting.

We introduce the pathwise optimization (PO) method, a new convex optimization procedure to produce upper and lower bounds on the optimal value (the “price”) of a high-dimensional optimal stopping problem. The PO method builds on a dual characterization of optimal stopping problems as optimization problems over the space of martingales, which we dub the martingale duality approach. We demonstrate via numerical experiments that the PO method produces upper bounds of a quality comparable with state-of-the-art approaches, but in a fraction of the time required for those approaches.

We develop an analytically-tractable model integrating the dynamic theory of investment with dynamic optimal incentive contracting, thereby endogenizing financing constraints. Incentive contracting generates a history-dependent wedge between marginal and average q, and both vary over time as good (bad) performance relaxes (tightens) financing constraints. Financial slack, not cash flow, is the appropriate proxy for financing constraints.

Using the 2007–2009 financial crisis as a laboratory, we analyze the transmission of crises to country-industry equity portfolios in 55 countries. We use an asset pricing framework with global and local factors to predict crisis returns, defining unexplained increases in factor loadings as indicative of contagion. We find evidence of systematic contagion from US markets and from the global financial sector, but the effects are very small.