We examine the impact of familiarity with business segments on CEOs' divestment decisions. We find CEOs are less likely to divest assets from familiar than from non-familiar segments. We attribute this effect to CEOs' comparative information advantage with respect to familiar segments....

It is often taken for granted that: 1) capital markets and institutions allocate funds to firms where realized returns on real assets are highest; 2) the net gains to the economy from investments by corporations have improved in the last 30-50 years due to innovations and better risk management...

We provide direct empirical evidence that share overvaluation is an important motive for firms to make stock acquisitions. We find that more overvalued firms are more likely to acquire with stock, and acquirers are more overvalued in successful stock mergers than in withdrawn mergers. Acquirers'...

We demonstrate in this study that firms that are more transparent pay less, in all components of issuance costs, to go public. We employ a sample of 334 previous leveraged buyouts and a characteristic-matched control sample to test the hypothesis that greater firm transparency before the issue...

Earnings paths are proxied by analyst forecasts leading up to the earnings announcement. We find that after controlling for information content, as revealed by the earnings announcement, security returns measured over the entire quarter are affected by the path of expected earnings. We uncover...

The paper argues that there is a need for the formal treatment of personal bankruptcy costs in the finance literature. The need arises out of the relevance of such costs to both corporate and personal financing decisions. We show that 1) personal bankruptcy costs (like personal taxes) are...

An examination of 268 CEO appointments in U.S. firms indicates that, on average, appointment of a better-quality CEO (a CEO who receives a pay premium ex-ante) is accompanied by an immediate positive revaluation of stock prices, and is followed by an improvement in firm performance. This...

Conrail, nationalized in 1976 and privatized in 1987, was the most significant nationalization and privatization by the US government in recent years. It was created from six bankrupt railroads under the pressure of interest groups, formed by customers, existing claimants, employees and related...

Does financial innovation improve market efficiency? Innovations that facilitate arbitrage are good examples. We use the stocks listed on the newly established single stock futures (SSF) exchanges to introduce a new approach to test for market efficiency. The measure is based on the reduction in...

This article is a primer on how profits are created in corporate finance and thus provides a justification for the role of corporate finance in practice. The key is to understand the role of corporate arbitrage. Corporations have a larger arbitrage opportunity set which allows the firm to...