Can Managers Successfully Time the Maturity Structure of Their Debt Issues?

This paper provides a rational explanation for the apparent ability of managers to successfully time the maturity of their debt issues. We show that a structural break in excess bond returns during the early 1980s generates a spurious correlation between the fraction of long‐term debt in total debt issues and future excess bond returns. Contrary to Baker, Taliaferro, and Wurgler (2006) , we show that the presence of structural breaks can lead to nonsense regressions, whether or not there is any small sample bias. Tests using firm‐level data further confirm that managers are unable to time the debt market successfully.     

What Is a Patent Worth? Evidence from the U.S. Patent “Lottery”

We provide evidence on the value of patents to startups by leveraging the quasi-random assignment of applications to examiners with different propensities to grant patents. Using unique data on all first-time applications filed at the U.S. Patent Office since 2001, we find that startups that win the patent “lottery” by drawing lenient examiners have, on average, 55% higher employment growth and 80% higher sales growth five years later. Patent winners also pursue more, and higher quality, follow-on innovation. Winning a first patent boosts a startup’s subsequent growth and innovation by facilitating access to funding from venture capitalists, banks, and public investors.     

The Value of Financial Flexibility

We develop a model that endogenizes dynamic financing, investment, and cash retention/payout policies in order to analyze the effect of financial flexibility on firm value. We show that the value of financing flexibility depends on the costs of external financing, the level of corporate and personal tax rates that determine the effective cost of holding cash, the firm's growth potential and maturity, and the reversibility of capital. Through simulations, we demonstrate that firms facing financing frictions should simultaneously borrow and lend, and we examine the nature of dynamic debt and liquidity policies and the value associated with corporate liquidity.     

Bank Capital Regulation of Trading Portfolios: An Assessment of the Basel Framework

In setting minimum capital requirements for trading portfolios, the Basel Committee on Banking Supervision (1996, 2011a, 2013) initially used Value‐at‐Risk (VaR), then both VaR and stressed VaR (SVaR), and most recently, stressed Conditional VaR (SCVaR). Accordingly, we examine the use of SCVaR to measure risk and set these requirements. Assuming elliptically distributed asset returns, we show that portfolios on the mean‐SCVaR frontier generally lie away from the mean‐variance (M‐V) frontier. In a plausible numerical example, we find that such portfolios tend to have considerably higher ratios of risk (measured by, e.g., standard deviation) to minimum capital requirement than those of portfolios on the M‐V frontier. Also, we find that requirements based on SCVaR are smaller than those based on both VaR and SVaR but exceed those based on just VaR. Finally, we find that requirements based on SCVaR are less procyclical than those based on either VaR or both VaR and SVaR. Overall, our paper suggests that the use of SCVaR to measure risk and set requirements is not a panacea.     

Don't Believe the Hype: Local Media Slant,Local Advertising,and Firm Value

When local media report news about local companies, they use fewer negative words compared to the same media reporting about nonlocal companies. We document that one reason for this positive slant is the firms' local media advertising expenditures. Abnormal positive local media slant strongly relates to firm equity values. The effect is stronger for small firms; firms held predominantly by individual investors; and firms with illiquid or highly volatile stock, low analyst following, or high dispersion of analyst forecasts. These findings show that news content varies systematically with the characteristics and conflicts of interest of the source.