This paper exploits a novel hand-collected data set to provide a comprehensive analysis of the social relationships that underlie illegal insider trading networks. I find that inside information flows through strong social ties based on family, friends, and geographic proximity. On average, inside tips originate from corporate executives and reach buy-side investors after three links in the network. Inside traders earn prodigious returns of 35% over 21 days, with more central traders earning greater returns, as information conveyed through social networks improves price efficiency. More broadly, this paper provides some of the only direct evidence of person-to-person communication among investors.

Using data from Securities and Exchange Commission filings, I show that the typical bank loan is renegotiated five times, or every nine months. The pricing, maturity, amount, and covenants are all significantly modified during each renegotiation, whose timing is governed by the financial health of the contracting parties and uncertainty regarding the borrowers’ credit quality. The relative importance of these factors depends on the duration of the lending relationship. I interpret these results in light of financial contracting theories and emphasize that renegotiation is an important mechanism for dynamically completing contracts and for allocating control rights ex post.

In contrast to the widely held belief that targets capture the lion's share of merger gains, I show that the average dollar gains to targets are only modestly more than the dollar gains to acquirers. To help explain the variation in merger outcomes, I present empirical evidence in support of a new hypothesis that a target's relative scarcity (proxied by its market power) and product market dependence (proxied by customer–supplier relations) help to explain its share of the total merger gains. These results provide new evidence for an unexplored role of product markets on bargaining outcomes in mergers.

Firms increasingly issue shares for the purpose of cash savings. During the 1970s, 1.00 of issuance resulted in 0.23 of cash savings; over the most recent decade, 1.00 of issuance resulted in 0.60 of cash savings. This increase is caused by increasing precautionary motives. Proxies for precautionary motives increase over the sample period, and firm-level increases in these proxies are associated with firm-level increases in share issuance–cash savings. Share issuance–cash savings are inversely related to issuance costs, suggesting that firms issue and save when costs are low, so as to avoid issuing when costs are high. This framework can also help explain patterns and trends in share issuance activity over time. Market timing does not explain these effects, as share issuance–cash savings are not related to post-issuance stock returns.

This paper proposes a new methodology to evaluate the economic effect of state-specific policy changes, using bank-branching deregulations in the US as an example. The new method compares economic performance of pairs of contiguous counties separated by state borders, where on one side restrictions on statewide branching were removed relatively earlier, to create a natural “regression discontinuity” setup. The study uses a total of 285 pairs of contiguous counties along 38 segments of such regulation change borders to estimate treatment effects for 23 separate deregulation events taking place between 1975 and 1990. To distinguish real treatment effects from those created by data-snooping and spatial correlations, fictitious placebo deregulations are randomized (permutated) on another 32 segments of non-event borders to establish empirically a statistical table of critical values for the estimator. The method determines that statistically significant growth accelerations can be established at a extgreater 90% confidence level in five (and none prior to 1985) out of the 23 deregulation events examined. “Hinterland counties” within the still-regulated states, but farther away from the state borders, are used as a second control group to consider and reject the possibility that cross-border spillover of deregulation effects may invalidate the empirical design.

A combination of observed and unobserved (latent) factors capture term structure dynamics. Information about these dynamics is extracted from observed factors using restrictions implied by no-arbitrage, without specifying or estimating any of the parameters associated with latent factors. Estimation is equivalent to fitting the moment conditions of a set of regressions, where no-arbitrage imposes cross-equation restrictions on the coefficients. The methodology is applied to the dynamics of inflation and yields. Outside of the disinflationary period of 1979 through 1983, short-term rates move one-for-one with expected inflation, while bond risk premia are insensitive to inflation.

Conventional wisdom suggests that lockup options are granted by self-interested target managers to discourage competition and hand-select an acquirer, thus harming target shareholder wealth. Evidence from 2,067 deals announced during 1988–1995 suggests that lockup options inhibit competition, but on average, deals with lockup options have higher target announcement and overall returns and lower bidder announcement returns, even after controlling for shareholder anticipation and other factors. An examination of 100 merger proxies suggests lockup options are no more prevalent in privately negotiated, preemptive deals, and average target returns are higher when such deals include a lockup option. The overall evidence is more consistent with managers using lockup options to enhance bargaining power than with lockup options harming shareholder wealth.

To control risk-related incentive problems, equity holders are expected to manage both the convexity and slope of the relation between firm performance and managers’ wealth. I find stock options, but not common stockholdings, significantly increase the sensitivity of CEOs’ wealth to equity risk. Cross-sectionally, this sensitivity is positively related to firms’ investment opportunities. This result is consistent with managers receiving incentives to invest in risky projects when the potential loss from underinvestment in valuable risk-increasing projects is greatest. Firms’ stock-return volatility is positively related to the convexity provided to managers, suggesting convex incentive schemes influence investing and financing decisions.

Management compensation is often categorized as either sensitive or insensitive to firm performance. This one-dimensional treatment ignores the variation in the types and terms of compensation contracts. Through a cross-sectional examination of share-holder-authorized compensation arrangements, this paper demonstrates that the terms of stock option and restricted stock plans, and the flexibility afforded the board of directions in negotiating with managers, vary systematically with the characteristics of the assets being managed. This variation in compensation contracting challenges theorists to incorporate the richness of management contracts into models of incentive pay.

Despite empirical evidence pointing to a strong similarity between lease contracts and junk bonds, the theoretical modeling of equilibrium lease determination has been confined primarily to default-free leases. This paper provides a unified framework for determining the equilibrium credit spread on leases subject to default risk. The model is flexible enough to be applied to a wide variety of real-world leasing structures, including security deposits, required up-front prepayments, embedded lease options, leases indexed to use, and lease credit insurance contracts.