We present a real-options model of takeovers and disinvestment in declining industries. As product demand declines, a first-best closure level is reached, where overall value is maximized by shutting down the firm and releasing its capital to investors. Absent takeovers, managers of unlevered...

This paper investigates the interaction between market entry, company foreclosure and capital structure in a duopoly. We find that the order in which firms foreclose is determined not only by differences in firm specific factors, but also by common economic factors, such as the interest rate and...

This paper analyzes the timing of mergers that are motivated by economies of scale. We show that the merger synergies are an increasing function of product market demand. Consequently, in the presence of fixed merger costs and stochastic demand, each firm's payoff from merging has call...

This paper analyzes the timing of mergers that are motivated by economies of scale. We show that the merger synergies are an increasing function of product market demand. Consequently, in the presence of fixed merger costs and stochastic demand, each firm's payoff from merging has call...

Traditional theories of capital structure do not explain the puzzling phenomena of zero-leverage firms and negative net debt ratios. We develop a theory where firms adopt a net debt target that acts as a balancing variable between equityholders and managers. Negative (positive) net debt occurs...

We present a theory of capital investment and debt and equity financing in a real-options model of a public corporation. The model assumes that managers maximize the present value of their future compensation (managerial rents), subject to constraints imposed by outside shareholders' property...

The Paper presents a continuous-time model for the timing of riskless arbitrage when the mispricing between two equivalent portfolios varies stochastically through time under the exogenous impact of liquidity trades and persistent prospect that the arbitrage bubble can 'burst' .