Compelling empirical evidence documenting a material effect of corporate taxes on leverage decisions is limited, in part because of difficulties in constructing an effective proxy for the firm's tax benefit of debt. We examine leverage decisions across taxable and nontaxable real estate firms—firms for which we can measure the relative tax benefit of debt with little error. The tax hypothesis implies that for firms with similar asset portfolios, taxable firms should have more debt than their nontaxable counterparts. Consistent with this, leverage ratios of taxable real estate firms are higher than their nontaxable counterparts, but the magnitude of this difference is at most one-half of that implied by studies that employ simulated marginal tax rates.

We use venture-backed initial public offerings (IPOs) to identify and examine the comparative advantage of inexperienced venture capitalists. We argue that, vis-a-vis more established counterparts, younger venture capital firms have a comparative advantage at producing soft information about relatively opaque start-up companies due to their organizational structure. We then quantify an outcome—IPO initial return—from the matching of venture capitalists and start-up companies that demonstrates how this comparative advantage arises. Our findings thus reveal an important aspect of how inexperienced venture capitalists support start-up companies.

We investigate whether business groups in China act as internal capital markets, in an environment that is characterized by a high level of government intervention, a weak legal system, and an underdeveloped financial market. We study how institutional factors, such as the ultimate owner and level of market development, shape the role of these business groups. We find that business groups help member firms overcome constraints in raising external capital, and that the internal capital market within a business group is more likely to be an alternative financing channel among state-owned firms than among private firms. We also find that the internal capital market is more likely to help those affiliated firms which are private, local government owned relative to those owned by central government, or located in regions with a well-developed institutional environment. We present evidence of the role of business groups in risk sharing among affiliated firms, but find that business group affiliation has no impact on firm accounting performance. This study sheds new light on the theory of the firm and its boundaries, and provides a better understanding of China's rapidly growing economy.

We show that public companies frequently changed their board structures before implementation of the Sarbanes–Oxley Act, with two-thirds of firms changing board size or independence during an average two-year period. Board changes were associated with changes in firm-specific fundamentals, but the rate of change toward predicted structures was negatively associated with the level of CEO influence. Companies changed board structures in either direction as underlying firm fundamentals changed, consistent with the pursuit of economically efficient board structures. However, board changes have become less frequent since the Sarbanes–Oxley Act was enacted. We provide some evidence that companies became less likely to decrease board independence when changes in fundamentals suggested they should, which may reflect a loss of economic efficiency.