The value of a conventional convertible bond is the value of a straight bond plus the value of the option to exchange it for a specified number of shares of common stock. First, I develop a closed-form contingent-claims convertible bond valuation model that quantifies the value of the exchange option when the short-term riskless rate, the firm's credit spread, and its share price are stochastic. I model the firm's decision to force early conversion as a stopping time problem in which the firm forces conversion as soon as the conversion value reaches the forced conversion barrier. I empirically validate the model by comparing model and market prices for a sample of 148 corporate convertible bonds issued between 2006 and 2010. The average median and mean pricing errors are −0.18% and 0.21%, respectively, which are within the average bid–ask spread for convertible bonds during the sample period. I use the model to quantify the disruptive impact that the prohibition on short selling during the recent financial crisis had on convertible bond prices.

The CLO shapes and enforces corporate governance, but is faced with a dual-role paradox that requires her to act as both monitor of corporate governance and executive of the firm. We study the role of the CLO under environments that are most likely to impact governance and pressure the firm to either emphasize or marginalize the CLO's role as monitor or facilitator. Using the financial shock of a securities class action lawsuit on large corporations, we measure changes in CLO value through the metrics of total and relative compensation of the CLO and other C-suite members. After controlling for relevant variables such as growth and total assets, we find that when firms have more insiders on their board of directors, the CLO's compensation declines when the preceding year's Tobin's Q is high. CLO compensation increases under conditions of high opacity, but that compensation partially erodes in high Tobin's Q environments. We also find that a lawsuit increases CFO and CEO turnover but not the CLO's. Our results have implications for corporate governance, the dual and potentially conflicting role of CLO as gatekeeper and monitor, executive compensation, and agency costs.

This paper studies differences in family and non-family firms' access to bank lending during the 2007–2009 financial crisis. The hypothesis is that the former's incentive structure results in less agency conflict in the borrower–lender relationship. Using highly detailed data on bank–firm relations, we exploit the reduction in bank lending in Italy following the crisis in October 2008. We find statistically and economically significant evidence that credit to family firms contracted less sharply than that to non-family firms. The results are robust to observable ex-ante differences between the two types of firms and to time-varying bank fixed effects. We show, further, that the difference is related to an increased role for soft information in some Italian banks' operations, following the Lehman Brothers failure. Finally, by identifying a match between those banks and family firms, we can control for time-varying unobserved heterogeneity among the firms and validate the hypothesis that our results are supply-driven.

This paper sheds light on the impact that environmental, social and governance (ESG) corporate practice disclosure has on equity financing. We present a unique framed field experiment in which professional private equity investors competed in closed auctions to acquire fictive firms. We hence observe that corporate non-financial (ESG) performance disclosure impacts firm valuation and investment decision and we quantify to which extent. Main result is an asymmetric effect, investors reacting more to bad ESG practice disclosure than to good ESG ones. Our findings are discussed in terms of practical implications for both investors and firm managers.

Clustering of IPO underwriting spreads at 7% poses two important puzzles: Is the market for U.S. equity underwriting services anti-competitive and why do equity underwriters invest in reputation-building? This study helps resolve both puzzles. Modeling endogeneity of firm-underwriter choice using a two-sided matching approach, we provide strong evidence of price and service differentiation based on underwriter reputation. High-reputation banks receive average reputational premia equaling 0.65% (0.47%) of average IPO (SEO) underwritten proceeds, which constitutes 10% (13%) of their underwriting spreads. Equity issuers working with high-reputation underwriters receive significant benefits, including higher offer values and lower percentage spreads net of reputational premia.