This paper examines the relation between chief executive officers’ (CEOs’) incentive levels and their firms’ risk characteristics. I show theoretically that, when CEOs cannot trade the market portfolio, optimal incentive level decreases with firm's nonsystematic risk but is ambiguously affected by firm's systematic risk; when CEOs can trade the market portfolio, optimal incentive level decreases with nonsystematic risk but is unaffected by systematic risk. Empirically I find support for these predictions. Furthermore, I find that incentives for CEOs likely facing binding short-selling constraints decrease with systematic as well as nonsystematic risk, as predicted by theory. Thus, compensation practice is consistent with predictions of theory.

The aim of this study was to retrospectively analyze 18F-FDG positron emission tomography/computed tomography (18F-FDG PET/CT) metabolic variables, programmed death-ligand 1 (PD-L1) and phosphorylated signal transducer and activator of transcription 3 (p-STAT3) tumor expression, and other factors as predictors of disease-free survival (DFS) in patients with lung adenocarcinoma (LUAD) (stage IA-IIIA) who underwent surgical resection. We still lack predictor of immune checkpoint (programmed cell death-1 [PD-1]/PD-L1) inhibitors. Herein, we investigated the correlation between metabolic parameters from 18F-FDG PET/CT and PD-L1 expression in patients with surgically resected LUAD.Seventy-four patients who underwent 18F-FDG PET/CT prior to treatment were consecutively enrolled. The main 18F-FDG PET/CT-derived variables were primary tumor maximum standardized uptake value (SUVmax), metabolic tumor volume (MTV), and total lesion glycolysis (TLG). Surgical tumor specimens were analyzed for PD-L1 and p-STAT3 expression using immunohistochemistry. Correlations between immunohistochemistry results and 18F-FDG PET/CT-derived variables were compared. Associations of PD-L1 and p-STAT3 tumor expression, 18F-FDG PET/CT-derived variables, and other factors with DFS in resected LUAD were evaluated.All tumors were FDG-avid. The cutoff values of low and high SUVmax, MTV, and TLG were 12.60, 14.87, and 90.85, respectively. The results indicated that TNM stage, PD-L1 positivity, and high 18F-FDG PET/CT metabolic volume parameters (TLG ≥90.85 or MTV ≥14.87) were independent predictors of worse DFS in resected LUAD. No 18F-FDG metabolic parameters associated with PD-L1 expression were observed (chi-square test), but we found that patients with positive PD-L1 expression have significantly higher SUVmax (P = .01), MTV (P = .00), and TLG (P = .00) than patients with negative PD-L1 expression.18F-FDG PET/CT metabolic volume parameters (TLG ≥90.85 or MTV ≥14.87) were more helpful in prognostication than the conventional parameter (SUVmax), PD-L1 expression was an independent predictor of DFS in patients with resected LUAD. Metabolic parameters on 18F-FDG PET/CT have a potential role for 18F-FDG PET/CT in selecting candidate LUAD for treatment with checkpoint inhibitors.

This paper employs heterogeneity in institutional shareholder tax characteristics to identify the relation between firm payout policy and tax incentives. Analysis of a panel of firms matched with the tax characteristics of the clients of their institutional shareholders indicates that “dividend-averse” institutions are significantly less likely to hold shares in firms with larger dividend payouts. This relation between the tax preferences of institutional shareholders and firm payout policy may reflect dividend-averse institutions gravitating towards low dividend paying firms or managers adapting their payout policies to the interests of their institutional shareholders. Evidence is provided that both effects are operative. Plausibly exogenous changes in payout policy result in shifting institutional ownership patterns. Similarly, exogenous changes in the tax cost of institutional investors receiving dividends results in changes in firm dividend policy.

Corporate bond prices are slow to respond to default risk and interest rate shocks, as proxied by firm-level stock returns and Treasury returns, respectively. Furthermore, the underreaction is risk-specific: bonds with better credit quality underreact more to default risk, while those with worse quality underreact more to interest rates. The underreactions imply substantial out-of-sample return predictability, and investors appear to be leaving too much money on the table. The results are consistent with behavioral inattention models in which investors endogenously allocate more attention to payoff-relevant (or salient) risks, and they are not explained by traditional trading friction mechanisms.

Postcrisis regulations apply stricter liquidity rules to both money market funds (MMFs) and banks, requiring MMFs to do more overnight lending and banks to borrow longer-term. MMFs and banks resolve this dilemma by developing a “bundling” strategy across overnight and longer term markets. In particular, MMFs increase longer term funding and charge a lower rate to banks that have recently accommodated MMFs’ overnight depositing needs. Such cross-market reciprocity is stronger between MMFs and foreign banks, which depend on MMFs for dollar funding more than U.S. banks do. MMFs with lower liquidity buffers and higher flow volatility are more likely to engage in bundling.

This paper investigates how takeovers create value. Using plant-level data, I show that acquirers increase targets' productivity through more efficient use of capital and labor. Acquirers reduce capital expenditures, wages, and employment in target plants, though output is unchanged. Acquirers improve targets' investment efficiency through reallocating capital to industries with better investment opportunities. Moreover, changes in productivity help explain the merging firms' announcement returns. The combined announcement returns are driven by improvements in target's productivity. Targets with greater productivity improvements receive higher premiums. These results provide some first empirical evidence on the relation between productivity and stock returns in takeovers.

Past literature has assumed that negative stock returns around Chapter 11 filing are solely due to new adverse information about firm value. This paper argues that there is also a nonlinear wealth transfer from shareholders to creditors causing shareholder loss. The magnitude of the wealth transfer can be quantified in a setting where equity is a call option on firm assets as in the Merton (1974) model. The wealth transfer originates from maturity shortening of the call option as a result of Chapter 11 filing. I present a parsimonious model to explain why Chapter 11 can be voluntarily filed by managers acting in the interest of shareholders with the existence of the wealth transfer. The model-predicted stock return has comparable magnitude as observed stock returns around filing, and explains the cross-sectional variation of the latter.

We examine the value and efficiency of analyst recommendations through the lens of capital market anomalies. We find that analysts do not fully use the information in anomaly signals when making recommendations. Analysts tend to give more favorable consensus recommendations to stocks classified as overvalued and, more important, these stocks subsequently tend to have particularly negative abnormal returns. Analysts whose recommendations are better aligned with anomaly signals are more skilled and elicit stronger recommendation announcement returns. Our findings suggest that analysts’ biased recommendations could be a source of market friction that impedes the efficient correction of mispricing.

We extend the neoclassical investment model (Hayashi, 1982) to allow for limited commitment on compensation contracts. We consider three types of limited commitment: (i) managers cannot commit to compensation contracts that provide lower continuation utility than their outside options; (ii) shareholders cannot commit to negative net present value (NPV) projects; (iii) both the managers and the shareholders cannot commit. We characterize the optimal contract under general convex adjustment cost functions and provide examples for which closed-form solutions can be obtained. We show that, as in the data, small firms invest more, grow faster, and have a higher Tobin׳s Q than large firms under the optimal contract. In addition, the pattern of the dependence of chief executive officer (CEO) compensation on past performance implied by our model is also consistent with empirical evidence.

We extend Baker and Wurgler's [2004a. Journal of Finance 59 1125–1165] catering theory to include decreases and increases in existing dividends. Consistent with our extended model, we find that the decision to change the dividend and the magnitude of the change depend on the premium that the capital market places on dividends. We also find that the stock market reaction to dividend changes depends on the dividend premium. Thus, the capital market rewards managers for considering investor demand for dividends when making decisions about the level of dividends.