Dividend Omissions and Intraindustry Information Transfers

We examine potential information transfers from companies that announce dividend omissions to their industry rivals. Specifically, we examine the abnormal stock returns and abnormal earnings forecast revisions of rivals after a company makes a dividend‐omission announcement. Our results show negative and significant abnormal stock returns and negative and significant abnormal forecast revisions for rival companies in response to the announcement, and a significant and positive relation between the two. We conclude that a dividend‐omission announcement transmits unfavorable information across the announcing company's industry that affects cash flow expectations and ultimately stock prices.     

Aid, Dutch disease, and manufacturing growth

We examine the effects of aid on the growth of manufacturing, using a methodology that exploits the variation within countries and across manufacturing sectors, and corrects for possible reverse causality. We find that aid inflows have systematic adverse effects on a country's competitiveness, as reflected in the lower relative growth rate of exportable industries. We provide some evidence suggesting that the channel for these effects is the real exchange rate appreciation caused by aid inflows. We conjecture that this may explain, in part, why it is hard to find robust evidence that foreign aid helps countries grow.     

Is China’s Development Finance a Challenge to the International Order?

China is a major funder of developing country infrastructure, lending $40 billion annually through policy banks. Lending does not favor the belt and road above other regions. China’s lending is indifferent to risk, that is, it is uncorrelated with indices of political stability and rule of law. Some major borrowers with poor governance are beginning to have debt sustainability problems, while other borrowers are in good fiscal shape. Chinese banks have been reluctant to follow global environmental norms but seem to be evolving in that direction. Chinese actions seem more a revision of the global system than a challenge to it.     

Collateral and capital structure

We develop a dynamic model of investment, capital structure, leasing, and risk management based on firms' need to collateralize promises to pay with tangible assets. Both financing and risk management involve promises to pay subject to collateral constraints. Leasing is strongly collateralized costly financing and permits greater leverage. More constrained firms hedge less and lease more, both cross-sectionally and dynamically. Mature firms suffering adverse cash flow shocks may cut risk management and sell and lease back assets. Persistence of productivity reduces the benefits to hedging low cash flows and can lead firms not to hedge at all.     

Managerial entrenchment, equity payout and capital structure

I develop a contingent claims model to examine the impacts of managerial entrenchment on capital structure and security valuation. The analysis shows that managers’ self-interested leverage choices deviate significantly from the optimal leverages that maximize firm values, partially explaining the suboptimal leverage ratios observed empirically (Graham, 2000). Both the extent and sensitivity of the deviations are affected by firm characteristics, debt features and default solutions. The shareholder-manager conflicts over risk level and cash payout vary dynamically with a firm’s financial health. Managerial entrenchment does not mitigate the agency problems of debt since managers’ discretionary decisions on milking properties or asset substitution could be driven by incentives to increase their own utility.     

Option pricing in the presence of natural boundaries and a quadratic diffusion term

This paper uses a probabilistic change-of-numeraire technique to compute closed-form prices of European options to exchange one asset against another when the relative price of the underlying assets follows a diffusion process with natural boundaries and a quadratic diffusion coefficient. The paper shows in particular how to interpret the option price formula in terms of exercise probabilities which are calculated under the martingale measures associated with two specific numeraire portfolios. An application to the pricing of bond options and certain interest rate derivatives illustrates the main results.     

Entrenchment,governance, and the stock price reaction to sudden executive deaths

To study managerial entrenchment, I use the stock price reaction to unexpected senior executive deaths. If a highly effective manager dies unexpectedly, the stock price reaction should be negative. If, however, death removes an entrenched manager when the board would or could not, the stock price reaction should be positive. While, individually, age and tenure only weakly correlate with the stock price reaction to a sudden death, the reaction is strongly positive (6.8%) if: (1) the executive’s tenure exceeds 10 years, and (2) abnormal stock returns over the last three years are negative.     

Earned/contributed capital, dividend policy, and disclosure quality: An international study

We examine the agency cost version of the lifecycle theory of dividends by taking advantage of cross-country variations in disclosure environments. The outcome hypothesis posits that transparent disclosure environments lead to higher dividend payouts because shareholders can more accurately measure (and therefore demand) excess cash flows. In contrast, the substitute hypothesis argues that opaque disclosure environments lead to higher payouts because managers have stronger incentives to establish their reputation for fair treatment. Our empirical results confirm both hypotheses and contribute to the literature in two primary ways. First, we confirm that the lifecycle theory of dividends explains dividend payout patterns around the world. Second, and more important, we show that the firm’s disclosure environment plays a significant role in dividend payouts through its effect on agency costs; that is, we confirm an agency cost-inclusive lifecycle theory of dividends.     

The optimal sequencing of carrots

When aid organizations contract with local agents aid funds have the potential to be diverted to purposes other than the intended project. A multi-stage game is presented where the benefit from the project is cumulative, with the application of funds in each stage increasing both the agent's and the organization's benefit from the project. As the agent's utility of diversion increases, the allocation in each stage decreases and the project takes more stages to complete. When contracting with agents with high utilities of diversion the optimal contract involves bloated projects and a side payment to the agent upon completion. If the organization's commitment to the contract is not credible both the agent's and the organization's benefit is reduced.