Business groups in emerging markets perform better than unaffiliated firms. One explanation is that business groups substitute some functions of missing institutions, for example, enforcing contracts. We investigate this by setting up a model where firms within the business group are connected...

Just as portfolio managers are seeking positive alpha, corporate investors are seeking Tobin's q larger than 1. The present paper develops a quantitative framework in which this process can be analyzed, and prescriptions for concrete financing decisions can be obtained. Specifically, we focus on...

I examine the effects of entrenchment on corporate investment and firm performance. To achieve identification, I use a novel measure of entrenchment and an instrumental variable based on firms' IPO cohort. I find that entrenchment reduces capital expenditures, R&D, and productivity, weakens a...

We examine the effects of entrenchment on corporate investment and firm performance. To achieve identification, we use a novel measure of entrenchment and an instrumental variable based on firms' IPO cohort. We find that entrenchment reduces capital expenditures, R&D, and productivity, weakens a...

We show that executives cut investment when their incentives become more short-term. We examine a unique event in which hundreds of firms eliminated option vesting periods to avoid a drop in income under accounting rule FAS 123-R. This event allowed executives to exercise options earlier and...

Stronger creditor rights reduce credit costs and thus may allow firms to increase leverage and investments, but also increase distress costs and thus may prompt firms to lower leverage and undertake risk-reducing but unprofitable investments. Using a German bankruptcy law reform, on average, we...

I show that access to the public debt market is associated with a significant reduction in the level of capital expenditures and takeovers, especially for firms with higher credit risk. Firms accessing the bond market also become less likely to violate debt covenants, reduce the level of payouts...

This paper studies the capital allocation decisions of firms that are comparable except for ownership under a unique setting using investment level data. We find allocative inefficiency across ownership to be exacerbated under policy distortions through subsidized credits targeted at state-owned...

Traditional finance theory suggests that riskier investments should yield higher returns. Challenging this notion, anecdotal and empirical evidence suggests that highly-incented managers may take on excessive risk, leading to greater losses, while other theoretical research argues that high...