Firms' inflexibility to adjust their scale persistently explains capital structure variations in a comprehensive sample and randomly-selected sub-samples. Higher inflexibility leads to lower financial leverage, potentially due to higher default risk and lower value of tax shields. Contraction...

A standard real options model predicts a strong positive interaction effect between research and development (R&D) investment and product market competition. R&D-intensive firms tend to be riskier and earn higher expected returns than R&D-weak firms, particularly in competitive industries. Also,...

Firms' inflexibility in adjusting output prices to input-cost shocks exacerbates information asymmetry between firm insiders and outsiders, but the government's disclosure of economic statistics mitigates this problem. We measure the public visibility of firms' input costs using a combination of...

This paper documents a new high risk-low return puzzle. Specfically, we find that a forward-looking risk measure extracted from credit line undrawn spreads negatively predicts borrowers' future stock returns. This negative risk-return relation is separate from previously documented asset pricing...

We develop a unified framework to connect cash holding, debt maturity and mergers and acquisitions. We provide empirical support for four internally consistent predictions: i) equity and debt values of highly distressed firms are more sensitive to cash reserve than those of healthy firms; ii)...

We study the effect of asset tangibility on corporate financing and investment decisions. Financially constrained firms benefit the most from investing in tangible assets because those assets help relax constraints, allowing for further investment. Using a dynamic model, we characterize this...