ABSTRACT This paper uses commercial aircraft transactions to determine whether capital constraints cause firms to liquidate assets at discounts to fundamental values. Results indicate that financially constrained airlines receive lower prices than their unconstrained rivals when selling used narrow‐body aircraft. Capital constrained airlines are also more likely to sell used aircraft to industry outsiders, especially during market downturns. Further evidence that capital constraints affect liquidation prices is provided by airlines' asset acquisition activity. Unconstrained airlines significantly increase buying activity when aircraft prices are depressed; this pattern is not observed for financially constrained airlines.

This paper uses commercial aircraft transactions to determine whether capital constraints cause firms to liquidate assets at discounts to fundamental values. Results indicate that financially constrained airlines receive lower prices than their unconstrained rivals when selling used narrow-body aircraft. Capital constrained airlines are also more likely to sell used aircraft to industry outsiders, especially during market downturns. Further evidence that capital constraints affect liquidation prices is provided by airlines' asset acquisition activity. Unconstrained airlines significantly increase buying activity when aircraft prices are depressed; this pattern is not observed for financially constrained airlines.

ABSTRACT This study provides evidence that transactions costs discourage debt reductions by financially distressed firms when they restructure their debt out of court. As a result, these firms remain highly leveraged and one‐in‐three subsequently experience financial distress. Transactions costs are significantly smaller, hence leverage falls by more and there is less recurrence of financial distress, when firms recontract in Chapter 11. Chapter 11 therefore gives financially distressed firms more flexibility to choose optimal capital structures.

This article examines the role of corporate headquarters in allocating scarce resources to competing projects in an internal capital market. Unlike a bank, headquarters has control rights that enable it to engage in “winner-picking”—the practice of actively shifting funds from one project to another. By doing a good job in the winner-picking dimension, headquarters can create value even when it cannot help at all to relax overall firm-wide credit constraints. The model implies that internal capital markets may sometimes function more efficiently when headquarters oversees a small and focused set of projects.

This study provides evidence that transaction costs discourage debt reductions by financially distressed firms when they restructure their debt out of court. As a result, these firms remain highly leveraged and one-in-three subsequently experience financial distress. Transactions costs are significantly smaller, hence leverage falls by more and there is less recurrence of financial distress when firms recontract in Chapter 11. Chapter 11 therefore gives financially distressed firms more flexibility to choose optimal capital structures.

ABSTRACT This article examines the role of corporate headquarters in allocating scarce resources to competing projects in an internal capital market. Unlike a bank, headquarters has control rights that enable it to engage in “winner‐picking”—the practice of actively shifting funds from one project to another. By doing a good job in the winner‐picking dimension, headquarters can create value even when it cannot help at all to relax overall firm‐wide credit constraints. The model implies that internal capital markets may sometimes function more efficiently when headquarters oversees a small and focused set of projects.

This study provides evidence that transactions costs discourage debt reductions by financially distressed firms when they restructure their debt out of court. As a result, these firms remain highly leveraged and one-in-three subsequently experience financial distress. Transactions costs are significantly smaller, hence leverage falls by more and there is less recurrence of financial distress, when firms recontract in Chapter 11. Chapter 11 therefore gives financially distressed firms more flexibility to choose optimal capital structures.

This article examines the role of corporate headquarters in allocating scare resources to competing projects in an internal capital market. Unlike a bank, headquarters has control rights that enable it to engage in 'winner-picking'–the practice of actively shifting funds from one project to another. By doing a good job in the winner-picking dimension, headquarters can create value even when it cannot help at all to relax overall firmwide credit constraints. The model implies that internal capital markets may sometimes function more efficiently when headquarters oversees a small and focused set of projects.

ABSTRACT This article presents a model of repurchase tender offers in which firms choose between the Dutch auction method and the fixed price method. Dutch auction repurchases are more effective takeover deterrents, while fixed price repurchases are more effective signals of undervaluation. The model yields empirical implications regarding price effects of repurchases, likelihood of takeover, managerial compensation, and cross‐sectional differences in the elasticity of the supply curve for shares.

This article presents a model of repurchase tender offers in which firms choose between the Dutch auction method and the fixed price method. Dutch auction repurchases are more effective takeover deterrents, while fixed price repurchases are more effective signals of undervaluation. The model yields empirical implications regarding price effects of repurchases, likelihood of takeover, managerial compensation, and cross-sectional differences in the elasticity of the supply curve for shares.