Both financing and risk management involve promises to pay that need to be collateralized, resulting in a financing versus risk management trade-off. We study this trade-off in a dynamic model of commodity price risk management and show that risk management is limited and that more financially constrained firms hedge less or not at all. We show that these predictions are consistent with the evi...

We document that in M&As a significant proportion of targets’ equity is owned by financial institutions that simultaneously own targets’ bonds (“dual holders”). Targets with larger equity ownership by dual holders have lower M&A equity premia and larger abnormal bond returns, particularly when dual holders stand to benefit more from appreciation of their bond stakes, e.g., when their bond owner...

We consider a setting in which two potential buyers, one with a prior toehold and one without, compete in a takeover modeled as an ascending auction with participating costs. The toeholder is more aggressive during the takeover process because she is also a seller of her own shares. The non-toeholder anticipates this extra-aggressiveness of the toeholder. Thus, he is deterred from participating...

The main purpose of this paper is to present the empirical findings derived from the data of small firms that the availability of private and public information on the borrowing firm leads to diverse borrowing patterns among firms. Exploring logit models to characterize the firm’s choice of a financial source, we find that firms whose information is poorly recorded, or who are publicly less rec...

Relationship lending is a common practice in credit financing all over the world, particularly in Germany. On the basis of a comprehensive data set comprising information on firm-bank relationships for more than 16,000 observations, this study analyses the determinants of relationship lending in Germany. We find that small, young and R&D-intensive firms tend to choose relationship lending. Furt...

We introduce explicitly the effort as a choice variable in a continuous time utility maximisation framework of an executive who is partly compensated with stock options. We solve the model in the case where the executive is not allowed to trade in the company’s stock but is able to achieve a partial insurance through trading in a correlated market portfolio. We define the executive’s value of t...

I demonstrate that non-financial corporations act as cross-market arbitrageurs in their own securities. Firms use one type of security to replace another in response to shifts in relative valuations, inducing negatively-correlated financing flows in different markets. Net equity repurchases and net debt issuance both increase when the expected returns on debt are particularly low, or when the e...

We investigate the determinants of cash holdings and firm value of Latin American firms during the Mexican crisis of 1994-1995 and the Brazilian crisis of 1999. We find that each crisis alters the determinants of cash and firm value differently. Larger firms increase their cash holdings during the Mexican crisis, while cross-listed firms increase their holdings of cash during the Brazilian cris...

Given the increasing importance of financing in foreign currency denominated debt, researchers have shown the conditions under which raising capital denominated in a foreign currency becomes feasible. We extend this literature in the context of a multinational corporation (MNC) by modeling the rivalry between equity and debt under a modified general equilibrium framework. We derive (i) internat...

This paper estimates the role of both tax and non-tax determinants in the choice in Sweden to be a closely-held corporation vs. a proprietorship, using individual data for 2004 to 2008 on owners of closely-held businesses. While lower-income individuals face relatively neutral incentives, higher income individuals face strong tax incentives to be corporate. The data suggest a relatively strong ...