We show that there is a negative relation between leverage and future growth at the firm level and, for diversified firms, at the business segment level. This negative relation between leverage and growth holds for firms with low Tobin's q ratio, but not for high-q firms or firms in high-q industries. Therefore, leverage does not reduce growth for firms known to have good investment opportunities, but is negatively related to growth for firms whose growth opportunities are either not recognized by the capital markets or are not sufficiently valuable to overcome the effects of their debt overhang.

There is a significant foreign influence on the risk premium for U.S. assets. Using a bivariate GARCH-in-mean process, we find that the conditional expected excess return on U.S. stocks is positively related to the conditional covariance of the return of these stocks with the return on a foreign index but is not related to its own conditional variance. Further, we are unable to reject the international version of the CAPM. We present evidence for different model specifications, multiple-day returns, and alternative proxies for foreign stock returns.