Using a sample from 1993 to 2010 of U.S. corporate bank loans, we study the relationship between CEO incentives for risk-shifting, proxied by Vega, and the cost of corporate bank loans. Equity-based compensation can enhance risk-shifting incentives, encouraging managers to make risky choices to...

We reexamine the Unemployment Rate (UR) -- government expenditure nexus in a panel of 50 State and Local Governments (SLGs) over the period 1977--2006 to provide new pre-recession empirical evidence that helps put the expectations on the effects of the federal relief to SLGs in a broader...

I examine if the 2009 bank stress test conducted by the Federal Reserve conveyed new information to investors. By analyzing bank bond returns, I show that the announcement of the bank stress test results mitigated information asymmetries in US banks.

Using quarterly data for the period 1959 to 2008, I study the relationship between excess stock returns and the <italic>change</italic> in expectations of the consumption--wealth ratio and of future long-run consumption growth. Using a vector error correction model (VECM), I estimate revisions in expectations on...

Comments by the Federal Reserve Chairman often evoked concerns about whether the government would protect bondholders in the event of default by Fannie Mae and Freddie Mac (F&F). Using a model of capital structure, we analyze the impact of this uncertainty on the value of the implicit subsidy...

This paper takes a deeper look at the measurement of the consumption–wealth ratio and analyzes its ability to capture variations in expected future stock returns. I find evidence of stock return predictability by taking a different approach than predictive regressions.

Using annual data from 1995 to 2009, I analyze the impact of banks’ financial fragility on the costs of U.S. corporate bank loans. Diamond and Rajan (2001) hypothesize that financially fragile banks are able to raise funds at a lower cost and competition among banks result in some of these...

We demonstrate that a firm's unsystematic risk is positively related to its cost of bank debt. A borrower's unsystematic risk needs to be costly monitored by the lender and some of this cost is included in the bank contract. A one SD increase in unsystematic risk results in a 14.0--19.5%...