We implement an earnings-based fundamental valuation model to test the impact of market timing on the firm's method of funding the financing deficit. We argue that our valuation metric provides a superior measure of equity misvaluation because it avoids multiple interpretation problems faced by the market-to-book ratio. It also eliminates the need to infer market timing based on the actions of corporate insiders or other indirect measures. We find a strong positive relation between the degree to which a firm is overvalued and the proportion of the firm's financing deficit that is funded with equity. This result is found cross-sectionally and through time and is robust to firm size, and other variables known to impact capital structure. We find evidence that overvaluation in the 1990s led to equity being increasingly preferred over debt. For a broad set of firms, market timing explains a significant portion of the variation in the type of security used to fund the financing deficit.

Using detailed hand-collected data on firm ownership and board cultural diversity from Sweden, we find that foreign ownership is positively associated with board cultural diversity. This relationship is not an artifact of foreign owners joining the board, and it is not driven by firms with substantial foreign focus. The presence of foreign owners on nomination committees seems to be the channel through which foreign owners implement cultural diversity. The positive relationship between foreign ownership and board cultural diversity is also more pronounced in firms where owners may have more say (family firms, dual-class share firms, and firms with concentrated ownership). However, we do not find evidence that cultural diversity increases firm value or that it is correlated with other types of diversity. Our preferred interpretation is quasi-homophily.

We examine how legal standards affect outcomes in shareholder lawsuits where the defendants create Special Litigation Committees (SLCs). We compile a hand-collected sample of SLC associated lawsuits spanning a 26-year period from Jan 1, 1990 through Dec 31, 2015. We produce extensive descriptive statistics on the utilization, role and effect of SLCs. We find evidence that law matters for SLC outcomes: case dismissals are the lowest in Delaware jurisdiction where the courts apply stricter standards of judicial review. But in states with the weakest legal standards for SLC judicial review, SLC cases are more likely to be dismissed. Defense lawyers appear to exploit these differences to obtain dismissals at a higher rate, potentially impacting shareholder value. Our results have implications for the legal standard of review for SLC cases.

Defense litigation counsel are retained by target firm management to defend them in mergers and acquisition (M&A) litigation. We use hand collected data from a ten-year period (2003−2012) to examine whether the choice of defense litigation counsel affects the outcome of M&A litigation and shareholder value. We construct league tables for defense litigation firms and identify the top 10 defense litigation firms. Comparing these firms with all other defense litigation firms, we find that top defense litigation counsel are involved in a significantly higher proportion of cash deals, non-same-industry deals (implying a lower possibility of antitrust-related concerns), and friendlier deals, all of which are associated with smaller initial takeover premium proposals. We find evidence that, controlling for endogeneity, top defense litigation counsel negotiate cheaper and faster settlements than other defense litigation counsel thereby protecting low premium deals from more serious challenges. We also show that top defense litigation counsel are more effective in multijurisdictional litigation cases, again obtaining cheaper and faster settlements in low premium deals, which we theorize shows that they are better able to handle the complexity and strategy that accompany these lawsuits.

This paper provides evidence of the association between a firm's investment opportunity set (IOS), director ownership, and corporate policy choices. Using a sample of growth and non-growth firms in an emerging Asian market, we find that the IOS theory has significant explanatory power in the financing, dividend, executive compensation, and leasing aspects of corporate policies. Growth firms have lower debt-to-equity ratios and dividend yields, pay higher cash compensation and bonus amounts to their top executives, and finance a higher proportion of their asset acquisitions through operating leases. We also find that director ownership moderates and counteracts the association between IOS and corporate policies. Our results are consistent with contracting theory predictions that high director ownership mitigates the need for incentive or bonus compensation plans in growth firms.

In a sample of California hospitals, we find that the composition of the board of directors varies systematically across ownership types. For all ownership types, except government-owned, we find that poor financial performance is related to board and CEO turnover. However, different ownership types place different weights on levels of charity care and administrative expenses. Our overall findings support the proposition that ownership type reflects heterogeneity across consumers and producers, and that differences in these groups lead to differences in the organization's objectives and governance.

We investigate how lender default shocks impact corporate investment. Lenders with recent default experience write stricter loan contracts, especially to borrowers with pre-existing relationships, leading to a reduction in real investment for all borrowing firms. The decline in investment is more pronounced when agency problems with creditors like asset substitution and claim dilution are higher. Moreover, the decline in investment is not attributable to more frequent covenant violations or to market conditions. The evidence highlights the role of supply-side frictions through the asset side of lenders’ balance sheets on corporate investment and how agency problems may act as mechanisms.

Bank liquidity shortages during the global financial crisis of 2007–2009 led to the introduction of liquidity regulations, the impact of which has attracted the attention of academics and policymakers. In this paper, we investigate the impact of liquidity regulation on bank lending. As a setting, we use the Netherlands, where a Liquidity Balance Rule (LBR) was introduced in 2003. The LBR was imposed on Dutch banks only and did not apply to other banks operating elsewhere within the Eurozone. Using this differential regulatory treatment to overcome identification concerns and a difference-in-differences approach, we find that the LBR increased the volume of lending by Dutch banks relative to other banks located in the Eurozone. Increased equity, an inflow of retail deposits and subsequent increase in balance sheet size allowed Dutch banks to increase lending despite having to meet the LBR requirements. The LBR also affected the loan composition of Dutch banks (with corporate and retail lending increasing more than mortgage lending) and the maturity profile of loan portfolios. Our results have relevance for policymakers tasked with monitoring the impact of liquidity regulations on banks and the real economy.

We use a unique hand-collected data set covering the entire career path of film directors, who are re-hired (or not) after each and every film project. Film directors manage projects which can cost hundreds of millions of dollars. We examine the inter-temporal dynamics of turnover decisions to disentangle ability revelation from effort incentives and measure the contribution of project managers to project success. We show that the probability of re-hiring is increasing in average returns over an entire career path, rather than just the outcome of the most recent project, supporting an ability revelation interpretation. We also find that promotions are increasing in directors' experience. We create an ability measure for directors, and show that directors can have a significant effect on the financial and critical success of their projects. Our evidence can inform the debate on CEO effects on their firms and projects and contribute to the CEO and executive turnover literature.

We study a model in which future financing constraints lead firms to have a preference for investments with shorter payback periods, investments with less risk, and investments that utilize more pledgeable assets. The model also shows how investment distortions towards more liquid, safer assets vary with the marginal cost of external financing and with firm internal cash flows. Our theory helps reconcile and interpret a number of patterns reported in the empirical literature, in areas such as risk-taking behavior, capital structure choices, hedging strategies, and cash management policies. For example, contrary to Jensen and Meckling [Jensen, M., Meckling, W., 1976. Theory of the Firm: managerial behavior, agency costs, and ownership structure. Journal of Financial Economics 305–360], we show that firms may reduce rather than increase risk when leverage increases exogenously. Furthermore, firms in economies with less developed financial markets will not only take different quantities of investment, but will also take different kinds of investment (safer, short-term projects that are potentially less profitable). We also point out to several predictions that have not been empirically examined. For example, our model predicts that investment safety and liquidity are complementary: constrained firms are specially likely to decrease the risk of their most liquid investments.