Recent research has found a positive relationship between firm propensity to pay (PTP) and retained-earnings-to-total-equity ratio (RE/TE). Motivated by a lifecycle theory of dividends, researchers have interpreted RE/TE as a proxy for firm maturity stage. This paper shows that the RE/TE ratios...

Recent research has revealed a persistent cross-sectional pattern in leverage ratios but found it difficult to explain. We show that growth-type (largely revealed early on) can parsimoniously explain the persistent dispersion in leverage. Using a two-way independent sort on firm initial...

Recent research has revealed a persistent cross-sectional pattern for leverage ratios. This paper argues that growth type captures important differences in market imperfections across firms. We show that growth type, largely revealed early on, parsimoniously explains the persistent dispersion in...

We propose a U-shaped relation between the relative weight of bank loans in total corporate debt and the firm's market-to-book ratio-a proxy for expected growth-which reconciles most existing theories. Using data on Japanese firms for 1983-97, we do find that, in the lower range of growth...

We test how keiretsu membership affects the Fama and French (1999) required IRR on value (or cost of capital) and the IRR on cost (or return on investment), 1974-95, of all listed non-financials in Japan. Rather than computing point estimates from aggregate data, we employ non-linear...

The literature has documented positive announcement effects for privately placed seasoned equity issues. This study shows positive announcement effects not only for private but also for public placements in Hong Kong. Our unique data offer new insights not obtainable from U.S. data as we examine...

This paper studies options on the minimum/maximum of two average prices. We provide a closed-form pricing formula for the option with geometric averaging starting at any time before maturity. We show overwhelming numerical evidence that the variance reduction technique with the help of the above...

We estimate both one-factor Vasicek and CIR bond pricing models and the cubic spline model using Belgian government bond data on each trading day over 1991-1992. We observe humped zero-yield curves with the two economic models but not the spline model during the period. The CIR model scores...

This paper generalizes the Myers and Majluf (1984) model by introducing an agency cost structure based on private benefits of control. This new model predicts that many corporate finance variables each have opposing effects on under- and overinvestment. Private benefits exacerbate overinvestment...