Corporate Finance

Dominant theories of trade tend to ignore the role of finance as a source of comparative advantage. On the other hand, the finance literature places financial institutions as a driver of economic growth. This paper unites these two competing schools of thought in a general equilibrium framework. For economies with high-quality institutions (defined by the competitiveness of the financial sector, the quality of corporate governance, and the level of property rights protection), finance is passive.

In this paper we study the determinants of business groups’ ownership structure using unique panel data on Korean chaebols. In particular, we attempt to understand how groups form over time. We find that chaebols grow vertically (that is, pyramidally) as the family uses well-established group firms (“central firms”) to set up and acquire firms that have low pledgeable income (e.g., low profitability) and high acquisition premia.

The empty creditor problem arises when a debtholder has obtained insurance against default but otherwise retains control rights in and outside bankruptcy. We analyze this problem from an ex-ante and ex-post perspective in a formal model of debt with limited commitment, by comparing contracting outcomes with and without insurance through credit default swaps (CDS).

One of the most important features of securitization is the ability to create securities whose credit risk is based on the quality of a pool of loans rather than the credit risk of the lender who originated the assets. However, the recent failure of many specialized lenders who relied on securitization, and the subsequent extremely poor performance of their securities, raises the question whether the performance of the security can be separated from the financial condition of its sponsor.

This paper examines whether underwriters of prime mortgage-backed securities exploit private information when trading in the secondary market. While underwriters bid on more than 83 percent of their own tranches, the tranches they avoid bidding on have fewer bidders and exhibit worse-than-average ex-post performance. Most strikingly, when an underwriter declines to submit a bid at a secondary market sale, 30-day delinquent loans are about 3 times as likely to roll to 60-days delinquent in the next month compared to pools where the underwriter bids.

ZigZag Zippers planned a $90 million renovation of their 100-year-old factory site. What was the least expensive option for funding this long-term project?

Accounting for Value teaches investors and analysts how to handle accounting in evaluating equity investments. The book's novel approach shows that valuation and accounting are much the same: valuation is actually a matter of accounting for value.

This study investigates the information content of variation analysis—that is, analysis of year-over-year changes in the components of operating profit. Using industry level data, we find that the effects on profitability of changes in the prices of output products and costs of intermediate inputs are more persistent than the effects of changes in output volume, labor cost, labor productivity, and intermediate input productivity. We further show that this information is priced by investors.

<p>We present a tractable, linear model for the simultaneous pricing of stock and bond returns that incorporates stochastic risk aversion. In this model, analytic solutions for endogenous stock and bond prices and returns are readily calculated. After estimating the parameters of the model by the general method of moments, we investigate a series of classic puzzles of the empirical asset pricing literature.