This article addresses the problem faced by a regulated natural monopolist who must raise outside funds to finance socially desirable projects. We demonstrate that "fair rate of return" utility price regulation will lead to underinvestment incentives in the presence of asymmetric information...

Under corporate and personal taxation, the authors demonstrate that the relation between optimal debt level and business risk is roughly U-shaped. This result follows from the fact that the tax liability is an option portfolio that is long in the corporate tax option and short in the personal...

We present an economic mechanism and supportive empirical evidence for the transmission of information between equity securities first documented by Lo and MacKinlay (1990). It is argued that the past returns on stocks held by informed institutional traders will be positively correlated with the...

This article compares the predictions of finite-shareholder models of conditional and unconditional takeover offers with the outcomes of laboratory experiments. In addition to differentiating between types of offers, the experimental designs span small and large firms as well as different levels...

This paper presents a two-period model in which dividends act as a signal of the stability of the firm's future cash flows. It is demonstrated that firms with more stable future cash flows pay a higher dividend. Dividends are a credible signal because the promise of a higher dividend, ceteris...

In this paper the choice of risky debt maturity structure is analyzed in a sequential game framework. The focus is on the set of viable equilibria when there are not transaction costs associated with the choice of debt maturity structure. It is shown that when changes in firm value are...

Optimal shareholder bidding strategies in a dutch auction share repurchase are derived when shareholder heterogeneity could be due to either differential expectations regarding the firm's future earnings or differential tax bases. Predictions of the theory are tested by analyzing the actual...

We provide a descriptive examination of the trading activities of one of the most important intermediaries in global financial markets - the OTC derivatives dealer. These dealers play a central role in the provision of derivative products and in the intermediation of market risks faced by...

We investigate the relationship between derivatives use and the extent of asymmetric information faced by the firm. Using alternative analyst forecast proxies for asymmetric information, we find evidence that both the use of derivatives and the extent of derivatives usage is associated with...