Corporate Finance

This paper develops a dynamic general equilibrium model of an agricultural economy in which poor farmers borrow from rich farmers. Because output is stochastic (we allow for idiosyncratic and aggregate shocks), there may be default ex post. We compare equilibria with and without political intervention. Intervention takes the form of a moratorium and is decided by voting. When bad economic shocks are highly likely, state-contingent debt moratoria always improve ex post efficiency and may also improve ex ante efficiency. Moreover, the threat of moratoria enhances efficiency.

The earnings—or rather losses—reported during the bubble were a good predictor of outcomes for dot.com firms. But are earnings the fundamental on which we should focus? The title of my talk suggests dividends as an alternative. Some analysts focus on cash flows, distrusting earnings. In the last ten years, alternative concepts like "comprehensive income," "residual income," and "abnormal earnings" have been advanced. There have been more references to book value. In addition to the profusion of new age techniques, an increasing number of fundamental attributes have been advanced.

In this paper, we develop an approach for filtering state variables in the setting of continuous-time jump-diffusion models. Our method computes the filtering distribution of latent state variables conditional only on discretely observed observations in a manner consistent with the underlying continuous-time process. The algorithm is a combination of particle filtering methods and the "filling-in-the-missing-data" estimators which have recently become popular. We provide simulation evidence to verify that our method provides accurate inference.

I focus on the valuation of the shares of a firm that has intangible assets. As most firms have some form of intangible asset that is not on the balance sheet, my talk deals with the general principles of vaulation when balance sheets are imperfect.

In this paper we argue that allowing for uncertainty resolves the controversy over the importance of life-cycle and bequest saving by showing that these motives for saving are overlapping and cannot generally be distinguished.

When a firm practices conservative accounting, changes in the amount of its investments can affect the quality of its earnings. Growth in investment reduces reported earnings and creates reserves. Reducing investment releases those reserves, increasing earnings. If the change in investment is temporary, then current earnings is temporarily depressed or inflated, and thus is not a good indicator of future earnings. This study develops diagnostic measures of this joint effect of investment and conservative accounting.

This paper studies the economic benefits of return predictability by analyzing the impact of market and volatility timing on the performance of optimal portfolio rules. Using a model with time-varying expected returns and volatility, we form optimal portfolios sequentially and generate out-of-sample portfolio returns. We are careful to account for estimation risk and parameter learning.

Much has been learned about emerging markets finance over the past 20 years. These markets have attracted a unique interdisciplinary interest that bridges both investment and corporate finance with international economics, development economics, law, demographics, and political science. Our paper focuses on the research areas that are ripe for exploration.