Management risk occurs because uncertainty about future managerial decisions increases a firm's overall risk. This paper documents the importance of management risk in determining firms' cost of borrowing. CDS spreads, loan spreads and bond yield spreads all increase at the time of CEO turnover,...

We document a strong positive cross-sectional relation between corporate bond yield spreads and bond return volatilities. As corporate bond prices are generally attributable to both credit risk and illiquidity as discussed in Huang and Huang (2012), we apply a decomposition methodology to...

Motivated by the evidence that investors tend to be overly optimistic about low-priced stocks, we examine how nominal price affects the cross section of stock returns. To circumvent the mechanical inverse relationship between price and expected return, we construct a novel way of examining the...

A new class of Capital Asset Pricing Models arises from the first principle of real investment for individual firms. Conceptually as “causal” as the consumption CAPM, yet empirically more tractable, the investment CAPM emerges as a leading asset pricing paradigm. Firms do a good job in...

This paper examines the welfare implications of bank capital requirements in a general equilibrium model in which a dynamic banking sector endogenously determines aggregate growth. Due to government bailouts, banks engage in risk-shifting, thereby depressing investment efficiency; furthermore,...

How does global warming affect firms' activities? We consider this issue from the perspective of theelectricity producing industry. Warmer temperatures increase the demand for air conditioning, the use of which fluctuates substantially over time, making investments in “flexible” power plants...

Many observers have argued that the fall in RMBS prices during the crisis was partly caused by fire sales. We provide an explanation for why financial institutions may have engaged in fire sales using a unique dataset of RMBS transactions for insurance companies. We show that risk-sensitive...

We survey the literature on private equity performance, focusing on venture capital and buyout funds rather than portfolio companies. We describe recent findings on performance measures, average fund returns, risk adjustments, cyclicality and liquidity, persistence, interim returns and...

This paper documents the existence of a CEO Investment Cycle, in which disinvestment decreases over CEO tenure while investment increases, leading to “cyclical” firm growth in assets as well as in employment. The estimated variation in investment rate over the CEO cycle is of the same order...