We link equity and treasury bond markets via an informational channel. When macroeconomic state shifts are more probable, informed traders are more likely to have valid signals about fundamentals, so that uninformed traders are less willing to trade against informed ones. This implies low volume and high volatility, that is, a high volatility–volume ratio (VVR). Central banks react to state shifts, but their actions are uncertain. Therefore, a higher state shift likelihood implies larger bond risk premia. These arguments together imply that VVR should positively predict bond excess returns. We empirically test and confirm this prediction, both in- and out-of-sample.

We examine whether financing commitments from a target firm’s financial advisor, in the form of stapled financing, provide certification of target value. Using a data set of leveraged buyouts spanning 2002–2011, and addressing endogeneity issues, we find that stapled financing has significant positive effects on sellers’ shareholder wealth, especially for targets suffering from greater adverse selection. Stapled financing facilitates deal financing by allowing buyers to obtain lower-cost and longer-maturity debt, and it is positively associated with bidding intensity. Investment banks offering stapled financing appear to trade off higher expected advisory fees against loss of lending efficiency ex post.

Do limitations on commissions paid to financial advisers reduce prices of financial products and stimulate investment? I examine these questions by estimating the causal effects of regulating commissions for mutual fund distribution. I exploit the unique institutional setting in Israel and the 2013 policy change when the government reduced commissions differently for different fund types. The reform led to a major decline in fund expense ratios and a consequent increase in fund flows. Funds with price-sensitive investors experienced 35% larger inflows. I interpret these results as investor responses to price competition fostered by a reduction in distribution costs.

We investigate whether firms’ number of credit relationships with financial institutions affects labor market outcomes. Using 5 million observations on matched credit and labor panel data from Brazil, we estimate IV regressions, employing exogenous variation in firm-lender relationships due to nationwide bank M&A activity. Firms with more relationships employ more workers and pay higher wage bills. Credit availability, cost of credit, and financial institution heterogeneity are economic channels. The firm-level results translate into positive macroeconomic effects in municipalities and states. The evidence is novel and indicates the positive effects of multiple relationships on labor market outcomes in an emerging economy.

We view innovation investments as real options and explore the implications of risk (volatility) as well as a newly defined outcome independent measure of ambiguity (Knightian uncertainty) for innovation decisions. The empirical analysis uses stock returns to compute an implementable measure of ambiguity. We also control for risk and other determinants of innovation. We find a consistently significant negative effect of ambiguity on R&D, patents, and citations, as predicted. The effect of risk on R&D is positive and significant, but the corresponding effect on patents and citations is negative and significant. Ambiguity matters more for high-tech firms, consistent with intuition.

Using firm-level survey information, we investigate whether relationship lending affects firms’ employment decisions in the face of negative sales shock. We find that firms with a durable relationship with their main bank display significantly less employment growth sensitivity to such shocks, especially where these are transitory. The result is stronger for younger and smaller firms that benefit from tighter bank-firm relationships, and for firms in sectors or economic environments where the costs of employment adjustment are greater. Our findings indicate that relationship lending provides liquidity insurance to firms to meet their demand for labor hoarding.

This paper investigates the optimal sequencing of debt issues. Our theoretical model suggests that once firms issue debt with one level of seniority, they may have an incentive to alternate seniorities, because of violations of the priced absolute priority rule (APR). When we introduce explicit costs of class conflict, the model yields cases of alternating seniorities and other cases in which firms issue only one class of debt. The implications of the model are consistent with the observed regularities in a large database of debt issues. We test several other implications of our model as well.

Some U.S. firms have women directors and executives, while many do not. We seek to explain this heterogeneity. Using U.S. Census data from 1900, we find that U.S. counties with populations originating from countries with stronger gender-egalitarian beliefs have more women in the labor market and in STEM occupations, and lower gender-pay gaps. Firms headquartered in such counties have more women executives and directors. When firms move to more gender-egalitarian counties, the representation of women on board increases. Our findings are consistent with the idea that inherited beliefs about gender roles impact the labor market and corporate leadership.

In recent years a substantial number of empirical studies have been conducted concerning aggregate commercial bank behavior [2, 8, 11, 14, 15, 17, 18]. Although the scope of these studies has varied widely, none has included an adequate treatment of the relationship between commercial bank liability management and earning asset adjustments. The importance of the relationship between liability management and commercial bank asset behavior has been alluded to in the literature [3, 5, 6, 13, 18]; but there has been very little empirical investigation of the subject. Moreover, little is known about which assets and liabilities are primarily involved. By increasing or decreasing earning assets, the commercial banking system can create or eliminate deposits, thus affecting the supply of both money and bank credit. Since liability management and asset behavior are very closely related, it seems that an adequate understanding of this relationship is essential to understanding the money supply process.

The simultaneity of security price determination has been recognized for many years. Lintner [6], Lerner and Carleton [5], Mossin [9], Sharpe [10], Tobin [15], and others have all advocated that securities be treated in a portfolio sense implying security prices are determined simultaneously. The empirical work in finance is just beginning to deal formally with this simultaneity.

I examine whether local bank finance facilitated the transition to a service-based economy in the U.S. I identify a causal role for local finance in service job creation. I use county-level changes to alcohol laws as demand shocks to service employers across a subsample of U.S. counties. Counties with more local finance experience more service job creation. This leads to labor market transitions that reflect shifts in the broader economy. Information asymmetry and collateral constraints connect local finance to service sector employment. The findings identify a unique role for local finance in the evolution to a postindustrial service-based economy.

In a recent article in this journal [6], Clement G. Krouse and Wayne Y. Lee (hereafter K-L) presented a model of optimal equity financing of a corporation based on Pontryagin's maximum principle. In this note the basic assumption of a constant internal rate of return of the K-L model is relaxed. As a result, the financial implications of the K-L results remain essentially unchanged, but their applicability is extended considerably, and some undesirable solution characteristics are eliminated.

In a recent issue of the Journal of Financial and Quantitative Analysis, Bernhard [2] has pointed out and discussed the seemingly paradoxical possibility that P < 0 even though there is a unique r in the [0, ∞) interval, and that r > it for all t. He showed that this can happen when there are one or more additional values of r in the (−1, 0) interval or when the unique r in the [0, ∞) interval consists of multiple coinciding roots. The further point to be shown here is that it can also happen even when r is unique and simple in the (−1, ∞) interval. Thus the phenomenon is considerably more general than Bernhard had implied.

Bond Risk Premia, or synonymously, yield spreads have been the subject of numerous theoretical and empirical studies. These studies always measured the difference yield spread (DYS hereafter), usually in terms of U. S. Treasury Bonds, as shown in equation (1).

An analysis of the dual problem described by Ronn (1987) reveals that it provides a powerful and easily interpretable test for the hypothesis of a single class of marginal investors, including models of equilibrium based on a “representative tax bracket.” When Ronn's empirical tests are interpreted via the dual, they lend additional support to his conclusions in providing a strong rejection of the representative tax bracket hypothesis. A valid dual LP used to test the hypothesis can be obtained with fewer assumptions than Ronn's primal; in addition, a minor error in Ronn's presentation of the dual is corrected.

In attempting to analytically discover or test economic relationships, econometricians have available many computational techniques by which to estimate the parameters of their models. But different solution methods may give unbiased and consistent, biased and consistent, or biased and inconsistent estimates under varying assumptions. The model builder is vitally interested in how each of these procedures reacts under varying conditions that may impinge on his model, but which are conditions not assumed by the estimation technique.

Increasing attention has been focused, as of late, on the relatively low rate of rental housing starts and the increase in apartment conversions to condominium ownership. By some estimates, additions to owner–occupied housing stock since 1970 have occurred at twice the rate of addition to the rental stock, a pattern that has caused concern to some policymakers.

The purpose of this paper is to investigate the performance of propertyliability insurance companies' stock portfolios from 1952 to 1968, and to show how that performance compared to the general stock market and investment company performance.

This is the first comprehensive study of the distribution of voting rights to shareholders. Only individuals owning stock on a record date may vote. Firms, however, reveal record dates after the fact 91% of the time. With controversial votes, firms are more likely to do the opposite, and this tendency is associated with a lower passage rate for shareholder-initiated proposals. The New York Stock Exchange sells nonpublic record-date information to select investors. When stocks go ex vote, prices decline and trading volume surges, suggesting that activist investors are buying marginal votes. These trends are most pronounced with controversial votes.