This paper systematically examines the impact of nine popular arbitrage costs measures on cross-sectional mispricing based on ten well-known and robust anomalies. We show that binding arbitrage barriers slowly change over time. In early years with few publications documenting return anomalies,...

We measure ex-ante expectation errors by identifying sporadic versus persistent total asset growth ex-ante. Corporate profitability of high (low) asset-growth firms remains inferior (superior) after temporary asset expansion (contraction), hence ex-ante expectation errors are high. Corporate...

We investigate whether and how firm-level political uncertainty affects firms' bank loan contracting. We find that firms facing higher firm-level political uncertainty are charged higher bank loan costs. This impact is amplified for firms with higher degrees of information asymmetry and firms...

Based on U.S. stock returns from 1973 to 2015, this study found that the asset growth anomaly does not seem to be pervasive and investable. The trading strategy is robust only among a tiny portion of the equity market in terms of both number of stocks and capitalization. In addition to...

The paper investigates whether and how a state's local corruption environment affects firms' financing costs. We find that firms in high-corruption states are associated with significantly higher loan spreads and tighter loan covenants. We use an instrumental variable approach and a...

Macroeconomic risks only partially capture the profitability premium, while adding a misvaluation factor based on investor sentiment helps explain a substantial amount of it. The profitability premium mainly exists in firms whose market valuations are inconsistent with their profitability and...

This study evaluates the importance of confirmatory bias and the representativeness in interpreting corporate earnings news. We find that: (i) confirmatory bias and the representativeness heuristic affect how analysts interpret earnings announcements; and (ii) confirmatory bias has greater...

Building on dynamic collusion theories, we predict that firms with less concentrated upstream or downstream industries have lower systematic risk because their supply chain partners tend to compete more aggressively during recessions, absorbing more of the adverse effect of aggregate shocks....

Prior studies show that resource adjustment costs and managerial discretion are important in the cost management. Recent studies suggest that behavioral biases can influence managerial discretion. We examine whether irrational pessimism induced by terrorism affects the sensitivity of costs to...