With a make-whole call, the call price is calculated as the maximum of the par value and the present value of the bond's remaining payments discounted at the prevailing risk-free rate plus a pre-specified spread known as the make-whole premium. The commonly accepted thumb rule in the investment...

I analyze 181 equity carve-outs to determine whether the transactions are motivated by potential efficiency improvements or by an opportunity to sell overvalued equity. Carve-out operating performance peaks at issue, declining significantly thereafter. Parents sell a greater percentage of shares...

The 'trade-off theory' of capital structure predicts a positive relationship between earnings and leverage, contradictory to well established empirical evidence. Since corporate earnings are known to be mean reverting, we reformulate the trade-off model "with mean reverting earnings". We show...

This paper theoretically compares yields and optimal default policies for callable and non-callable corporate debt. It shows that, contrary to the conventional wisdom, it is possible for the yield spread (callable minus non-callable) to be negative. It also identifies the key determinants of the...

The correlation structure of asset returns is a crucial parameter in risk management as well as in theoretical finance. In practice, however, the true correlation structure between the returns of assets can easily become obscured by time variation in the observed correlation structure and in the...

Two common methods of attracting corporate investment are investment incentives and tax incentives. It is important to use the two incentives in the correct proportions, otherwise the government will give up too much value in the process of attracting investment. This paper examines the effect...