This paper develops and tests a structural investment model nesting the Q theory and ...ve distortions: contract-induced CEO myopia, empire building, shirking, debt overhang, and ‡otation costs. Supporting the empire building hypothesis, founders’ (non-founders’) investment is consistent with their deriving an annual bene...t of $3.30 ($0.40) per $1000 of capital. Evidence of contract-induced m...

Firms can use capital that they either purchase or lease, but these alternatives are treated differently for tax purposes. This paper derives the demand for leased capital as a function of tax parameters, and uses the model to estimate the responsiveness of leasing to the introduction of bonus depreciation in 2002, finding strong evidence that depreciation allowances influence leasing patterns....

We examine exogenous changes in state corporate income taxes over the 1988-2006 period and find that tax decreases significantly boost both the quantity, measured by the number of patents, and the quality, measured by citations per patent, of innovative output, while tax increases have little impact on innovation. Most of the impact of tax changes on innovation occurs two or more years after th...

The recent interest in the valuation of tax benefits from debt arises from the disagreement in the existing literature about the meaning of “value of tax shields.” Although it is accepted that the value of a firm increases as effect of the tax deductibility of interest, the correct valuation of this extra-value is controversial. In this paper we adopt a risk-neutral approach to derive a general...

Using firm age as a proxy for the learning process within a firm, we show that the investments of young firms react more aggressively to profit realizations than the investments of mature firms. With time, firms learn about their long-term quality and their investment decisions become less influenced by the random shocks they receive. We also show that the learning process depends on the volati...

This paper empirically examines whether additional future fixed capital and R&D investment expenditures induce firms to accumulate cash reserves while considering the role of market imperfections. Implementing a dynamic framework on a panel of US, UK and German companies, we find that firms make larger additions to cash holdings when they plan additional future R&D rather than fixed capital inv...

I investigate the relation between firm risk and firm transparency over the period 1992-2006 and find that the level of firm transparency and the level of firm risk are negatively related. I also find that higher CEO pay-performance sensitivity (delta) works to mitigate this inverse relationship. This result is consistent with Hermalin and Weisbach (2007) who suggest that managers reduce risk t...