This paper shows that the existence of managerial ability, combined with the labor contract prevalent in the industry, implies that the closed-end fund discount should exhibit many of the primary features documented in the literature. We evaluate the model's ability to match the quantitative...

This article presents a technique for nonparametrically estimating continuous-time diffusion processes that are observed at discrete intervals. The authors illustrate the methodology by using daily three and six month Treasury bill data, from January 1965 to July 1995, to estimate the drift and...

We derive the optimal labor contract for a levered firm in an economy with perfectly competitive capital and labor markets. Employees become entrenched under this contract and so face large human costs of bankruptcy. The firm's optimal capital structure therefore depends on the trade-off between...