By studying the gap between the discount rates used by executives and shareholders, we assess the extent to which governance problems distort firm behavior. The estimation strategy recovers discount rates used by executives from the pattern of their actual investment spending. Our empirical work...

We derive a simple theoretical framework in which acquisitions are treated as an alternative way of obtaining capital goods. Our framework predicts that both investment and acquisitions are positively related to a firm's shadow value of capital. We transform our theoretical specification into an...

Many economists believe that the stock market plays an important role in efficiently allocating capital to its most productive uses. This standard story of the stock market was called into question by events in the late 1990s, when some observers believed that stock market overvaluation – or a...