We study the effect of bank competition on the design of syndicate loans. We find that competition in the lead lender's market plays a significant role in determining the terms of the syndicate loans. Specifically, higher concentration leads to higher yield spreads, larger issues, shorter maturities, greater contract intensity, and more collateral requirements, but with a greater likelihood of performance pricing. We also find the prior banking relationships, anti-takeover provisions and whether the lead bank is a national, regional, or state bank influence the designs of these loans.

Prior evidence on how executive compensation influences managerial incentives to take risks in shareholder's interest ignores potential spillover effects, even though there is evidence that compensation in one firm affects the compensation in other firms. We address this issue in a way that considers a broader view of corporate networks. Specifically, we examine the effects of a tax law change that induced a change in the vega of CEO compensation. We find that this change is associated with a larger increase in the vegas of directly affected CEOs than would be estimated without considering spillover effects. Moreover, we find evidence for the diffusion of these changes to other firms within their industry. Further, this diffusion is greater the more affected firms within an industry. And finally, we find that these changes are associated with increases in the asset volatility of both treated and untreated firms.

The design of debt contracts responds to changes in credit market conditions. We extend prior research on how credit market conditions influence the design of bank loans to focus on their effects on the design of new corporate bond issues. We find that credit conditions in the government debt market and the bank loan market significantly influence the design of new corporate bonds. When banks tighten their credit standards, we find significant differences in the design of new bonds of high and low credit risk issuers reflecting the fact that the design of a corporate bond is intended to mitigate the risk of default. Finally, the package of bond features reflects the complementarity of various bond features.

Noe and Rebello (2012) argue that a firm's environment is not stationary and, as a result, the relationships between corporate governance and firm behavior change to adapt to changes in its environment. We provide evidence that a legal shock (Sarbanes–Oxley Act) and an economic shock (2007/2008 financial crisis) induced changes in the relationships between different corporate governance features and a firm's tendency to report conservatively. Additionally, we provide evidence on the weakness of fixed effects panel regressions to fully understand the effects of various corporate governance features on a firm's tendency to report conservatively.

Our study addresses two issues overlooked in prior research: Does a firm's future operating lease obligations influence its current cash holdings? Does this relationship contribute to the temporal increase in corporate cash holdings? We provide evidence that these future obligations significantly influence a firm's cash holdings and contribute to the temporal increase in U.S. corporate cash holdings. Consequently, our findings are consistent with the options offered by operating leases to young growing firms and the effect of these operating lease obligations on the firm's operating leverage.

We provide a model of television advertising based on an explicit characterization of an advertisement's contribution to an advertiser's profits that suggests that each program faces a downward sloping demand for its ad time. Hence Fournier and Martin's (1983) "law of one price" does not hold in our model. We study these contrasting arguments about television advertising by examining the pricing of broadcast network advertising. In conducting this empirical examination we encounter and solve a severe multicollinearity problem. We conclude that the evidence supports the advertising model presented in this paper and demonstrates segmentation between cable and broadcast viewers in the national television advertising market.

We investigate how changes in the availability of bank credit influence how public firms manage their working capital, which is essential to their operations. In doing so, we provide an enhanced understanding of what significantly influences corporate working capital management. We find that changes in the availability of bank credit significantly influence a number of aspects of a firm's working capital policies, and these effects often differ across firms that are more or less dependent on bank financing. Interestingly, our evidence points to the importance of the changing mix of U.S. companies for working capital practices.

This study examines the joint choice of bond features that corporations make in defining their bonds. Using data on new corporate bond issues from 1990 through 2012, we find that corporate bonds are packages of different provisions and restrictions reflecting complementarities between bond features that change with issuer characteristics. Broadly, we find evidence that asymmetries of information between issuer and investors, agency conflicts between stockholders and bondholders, credit risk, the nature of the firm’s growth prospects, and bond market conditions all play a role in the use or non-use of different corporate bond features.

We explore how various aspects of corporate governance influence the likelihood of a public corporation surviving as a separate public entity, after addressing potential endogeneity that arises from competing corporate exit outcomes: acquisitions, going-private transactions, and bankruptcies. We find that some corporate governance features are more important determinants of the form of a firm's exit than many economic factors that have figured prominently in prior research. We also find evidence that outsider-dominated boards and lower restrictions on internal governance play major roles in the way firms exit public markets, particularly when a firm's industry suffers a negative shock. Overall, our results suggest that failure to recognize competing risks produces biased estimates, resulting in faulty inferences.

Do the effects of corporate governance on corporate capital structure choices change as a public firm ages? First, we address the direct effects of firm age and governance features on both its decisions to use debt and how much debt to employ. Our analysis reveals a number of novel results. While firm age is positively correlated with the use of debt, it is negatively correlated with how much debt a firm uses. We also find that the effects of firm age on how much debt a firm uses is primarily due to the interaction between firm age and its governance features. The more power that insiders possess, the less debt that the firm uses as it ages. We interpret our evidence as implying that over time, managers allow their risk preferences to dominate their firm capital structure decisions when they are protected from discipline.

We show that a firm's operating lease expenses are the major driver of measures of a firm's operating leverage, operational inflexibility, and sticky costs. Moreover, we show that these expenses are an important determinant of a firm's asset volatility, and therefore has implications for the pricing of different securities.

We provide the first empirical study of the relationship between corporate working capital management and shareholders' wealth. Examining US corporations from 1990 through 2006, we find evidence that: the incremental dollar invested in net operating working capital is worth less than the incremental dollar held in cash for the average firm; the valuation of the incremental dollar invested in net operating working capital is significantly influenced by a firm's future sales expectations, its debt load, its financial constraints, and its bankruptcy risk; and the value of the incremental dollar extended in credit to one's customers has a greater effect on shareholders' wealth than the incremental dollar invested in inventories for the average firm.

There are two separate streams of research that share an overlooked linkage: the first relates a firm’s sales and general administrative expense to its capital structure and stock returns; the second associates a firm’s use of operating leases to its capital structure and stock returns. We show that these separate streams of research are driven by how a firm’s operating lease expense influences its asset volatility. Further, we extend our argument to the pricing of corporate debt and find significant evidence to support our conjectures.

One of the core issues in finance is to understand why firms finance themselves as they do. This issue has become increasingly important because how firms are financed influences their performance and value. Since the 1950s, the capital structure literature has addressed this fundamental issue by focusing on a firm's mix of debt and equity. However, firms often use more than one type of debt claim. Furthermore, some firms use certain types of debt claim that others do not use. The financing choices of various forms of debt claim and different amounts of debt issued lead to financial data with multiple continuous proportions and many zeros implied by debt structures. We propose a novel method for addressing such choice-implied statistical issues. Our method is based on choice probability-driven submodels and is empirically implementable even in large dimensions. Its performance is demonstrated by simulations. Its application to the analysis of debt structures of U.S. corporations reveals that the determinants of the choice to use a particular form of debt and how much of that type of debt to use are not identical: a valuable insight missing from prior financial research. Our methodology is applicable not only to firm financing decisions in corporate finance, but also to choices in other critical areas of finance such as household investment decisions in household finance. (C) 2017 Wiley Periodicals, Inc.

Prior research suggests that a firm’s selling, general and administrative expense is negatively correlated with the degree of its financial leverage, yet positively correlated with its stock returns. We show that prior explanations of such behavior are inconsistent with one another and that they ignore the earlier literature on “sticky” costs. We show that these sticky costs influence the asset volatility of a firm and, thereby, its stock and bond prices. We further provide a different interpretation of why these sticky costs influence a firm’s asset volatility that emphasizes the role of operating leases: supporting concerns underlying FASB’s proposed revisions of lease accounting.

Most, if not all, published theoretical models of capital structure decisions assume that all firms follow the same capital structure decision process or strategy. We argue that such an assumption is inconsistent with extant evidence. Instead, we argue that there is heterogeneity in the decision processes and strategies that managers follow, and that they make adaptive adjustments to their strategies that are conditioned on the choices of other firms as well as their prior choices. Using data on U.S. corporate capital structures between 1965 and 2003, we find evidence that is consistent with our proposed alternative. Our characterization of the evolution of corporate capital structures emphasizes the roles of a firm’s initial capital structure and its competitors’ capital structure strategies.