This Paper analyses firms’ capital allocation decisions when optimal capital structure is linked to the risk of underlying assets and when equity capital is costly and cannot be raised instantaneously. In the model, division managers receive private information and authority is delegated to...

This paper takes a novel approach to estimating bankruptcy costs by inference from market prices of equity and put options using a dynamic structural model of capital structure. This approach avoids the selection bias of looking at firms in or near default and therefore permits theories of ex...

Financial institutions are facing increased pressure to enhance shareholder value. This has lead to the popularity of practical techniques such as EVA and RAROC. The major purpose of this study is to illustrate the interaction between incentive-based compensation and performance evaluation in a...

Equity capital allocation plays a particularly important role for financial institutions such as banks, who issue equity infrequently but have continuous access to debt capital. In such a context this paper shows that EVA and RAROC based capital budgeting mechanisms have economic foundations. We...

Given recent public attention paid to high-flying internet IPOs such as Yahoo and Amazon.com, this paper explores a product market motive for going public. We develop a model where consumers look to the stock price to make inferences. The model predicts that only better quality firms will go...

Intermediaries such as financial advisers serve as an interface between portfolio managers and investors. A large fraction of their compensation is often provided through kickbacks from the portfolio manager. We provide an explanation for the widespread use of intermediaries and kickbacks....

This Paper documents the aggregate trends in the foreign listings of companies and analyses both their distinctive pre-listing characteristics and their post-listing performance relative to other companies. In the 1986-97 interval, many European companies listed abroad, but did so mainly on US...

Despite the increasing integration of capital markets, geography has not yet become irrelevant to finance. Between 1986 and 1997, European public companies have increasingly listed abroad, especially in the US. We relate the cross-listing decisions to the characteristics of the destination...

We investigate the distribution of trading volume across different venues after a company lists abroad. In most cases, after an initial blip, foreign trading declines rapidly to extremely low levels. However, there is considerable cross-sectional variation in the persistence and magnitude of...

We consider a model of optimal bank closure rules (cum capital replenishment by banks), with Poisson-distributed audits of the bank's asset value by the regulator, with the goal of eliminating (ameliorating) the incentives of levered bank shareholders/managers to take excessive risks in their...