Better measurement of the output produced and capital employed by firms substantially improves the ability to explain capital structure variation in the cross section. For every firm, we construct the set of other firms producing the same output using the set of product market competitors listed in the firm’s public Securities and Exchange Commission filings. In addition, we improve measurement of capital structure by explicitly accounting for leased capital. These two steps increase the explanatory power of the average capital structure of other firms producing similar output on a firm’s capital structure by 50% compared to using only the average unadjusted debt ratio of other firms in the same three-digit Standard Industrial Classification (SIC) code. We provide evidence that the large explanatory power of the capital structure of other firms producing similar output is related to the assets used in the production process. Our findings suggest that what a firm produces and the assets used in production are the most important determinants of capital structure in the cross section.

Most existing macro-finance term structure models (MTSMs) appear incompatible with regression evidence of unspanned macro risk. This “spanning puzzle” appears to invalidate those models in favor of new unspanned MTSMs. However, our empirical analysis supports the previous spanned models. Using simulations to investigate the spanning implications of MTSMs, we show that a canonical spanned model is consistent with the regression evidence; thus, we resolve the spanning puzzle. In addition, direct likelihood-ratio tests find that the knife-edge restrictions of unspanned models are rejected with high statistical significance, though these restrictions have only small effects on cross-sectional fit and estimated term premia.

Previous research documents differences in trading desk skills across management companies that result in significant variation in execution costs. In this paper, we utilize links between management companies and their institutional clients to explore variation in execution costs within management companies. For a subset of management companies, we find that systematic differences in execution costs exist across clients; these differences are comparable to the variation documented across management companies and persist over time. Clients who receive lower execution costs reward management companies with an increase in dollar trading volume. We find no evidence that the results are driven by broker commissions or differences in trading practices. Given the economic significance of our findings and implications for institutional investors, this aspect of execution should be recognized regardless of the ultimate source of the differences.

This paper investigates why traders hide their orders and how other traders respond to hidden depth. Using a logit model, we provide empirical findings suggesting that traders use hidden orders to manage both exposure risk and picking off risk. Using probit models, we show that hidden depth increases order aggressiveness. Our interpretation of this empirical evidence is threefold. First, hidden depth detection is possible and frequent. Second, when traders detecthidden volume at the best opposite uote, they strategically adjust their order submission to seize the opportunity for depth improvement. Third, traders' response when hidden depth is detected suggests either that they do not associate hidden orders with informed trading or that the risk of trading with an informed trader is widely offset by the opportunity for depth improvement.

We use a mean-variance approach to address the classic puzzle of British capital export in the 19th century. Our analysis shows that foreign securities listed in London offered significant diversification benefits to British investors. In simple terms, international diversification reduced risk. Conservative estimates of the optimal investment portfolio for a domestic investor suggest that the balance between foreign and domestic security offerings on the London Exchange was close to what classic equilibrium models of asset prices would suggest.

We examine the effect of the composition of the board of directors on the firm’s chief executive officer (CEO) hiring decision. Using a novel measure of managerial talent, characterized by an individual’s ascent in the corporate hierarchy, we show that firms with non-CEO inside directors tend to hire CEOs with greater managerial skills. This effect obtains for both internal and external CEO hires; moreover, the effect is pronounced when inside directors have stronger reputational incentives and limited access to soft information about the candidate. Our findings demonstrate that boards with inside directors more effectively screen for managerial talent, thereby improving the CEO hiring process.

Employee matching grant schemes are coordination mechanisms that reduce free-riding by socially conscious employee-donors. Matching schemes coupled with lower take-home pay than offered by non-matching firms will survive capital and labor market competition if employee type is not observable and socially conscious employees are more productive or value working together. Matching can enhance employee welfare and raise more for charity without reducing profits. We document that matching firms have higher labor productivity and are more likely to be ranked as one of the “100 Best” employers. The result is robust to managerial entrenchment concerns and is not confined to the high-tech sector.

We model sequential bidding in a private value English auction when it is costly to submit or revise a bid. We show that, even when bid costs approach zero, bidding occurs in repeated jumps, consistent with certain types of natural auctions such as takeover contests. In contrast with most past models of bids as valuation signals, every bidder has the opportunity to signal and increase the bid by a jump. Jumps communicate bidders’ information rapidly, leading to contests that are completed in a few bids. The model additionally predicts; informative delays in the start of bidding; that the probability of a second bid decreases in, and the jump increases in, the first bid; that objects are sold to the highest valuation bidder; and that revenue and efficiency relationships between different auctions hold asymptotically.

Financial decision making under time pressure, though ubiquitous, is poorly understood; classical and behavioral finance are silent about the time required for a decision to be made. In an experiment, calibrating allowable decision times to 1, 3, and 5 s, we find that classical moment-based preferences reflect time-invariant sensitivity to expected reward, purchase impulsiveness under extreme time pressure, and decreased aversion to variance and increased aversion to skewness with decision time. These time-varying sensitivities translate into increased probability distortions and decreased risk aversion for gains under prospect theory (PT). Strikingly, moment-based theory provides a better fit than PT.

We price the risky component of specialness spreads—identified by their deviations from the expected auction cycle—within a dynamic term structure model estimated using daily prices of all outstanding Treasury securities and corresponding special collateral (SC) repo rates. This allows us to derive a time-varying SC risk premium that we quantitatively link to various price anomalies, such as the on-the-run premium. The SC risk premium explains about 80% of the on-the-run premium and a substantial share of other Treasury price anomalies, suggesting that unexpected fluctuations in the specialness spreads of recently issued nominal Treasury securities are a common risk factor.