Both financing and risk management involve promises to pay that need to be collateralized, resulting in a financing versus risk management trade-off. We study this trade-off in a dynamic model of commodity price risk management and show that risk management is limited and that more financially constrained firms hedge less or not at all. We show that these predictions are consistent with the evidence using panel data for fuel price risk management by airlines. More constrained airlines hedge less both in the cross section and within airlines over time. Risk management drops substantially as airlines approach distress and recovers only slowly after airlines enter distress.

We evaluate the performance of limited partners׳ (LPs׳) private equity investments over time. Using a sample of 14,380 investments by 1,852 LPs in 1,250 buyout and venture capital funds started between 1991 and 2006, we find that the superior performance of endowment investors in the 1991–1998 period, documented by prior literature, is mostly due to their greater access to the top-performing venture capital partnerships. In the subsequent 1999–2006 period, endowments no longer outperform, no longer have greater access to funds that are likely to restrict access, and do not make better investment selections than other types of institutional investors. Nevertheless, all investor types׳ private equity investments continue to outperform public markets on average. We discuss how these results are consistent with the general maturing of the industry, as private equity has transitioned from a niche, poorly understood area to a ubiquitous part of institutional investors׳ portfolios.

Although recent research documents a positive relation between corporate transparency and the proportion of independent directors, the direction of causality is unclear. We examine a regulatory shock that substantially increased board independence for some firms, and find that information asymmetry, and to some extent management disclosure and financial intermediation, changed at firms affected by this shock. We also examine whether these effects vary as a function of management entrenchment, information processing costs, and required changes to audit committee independence. Our results suggest that firms can alter their corporate transparency to suit the informational demands of a particular board structure.

During the past decade, non-bank institutional investors are increasingly taking larger roles in the corporate lending than they historically have played. These non-bank institutional lenders typically have higher required rates of return than banks, but invest in the same loan facilities. In a sample of 20,031 leveraged loan facilities originated between 1997 and 2007, facilities including a non-bank institution in their syndicates have higher spreads than otherwise identical bank-only facilities. Contrary to risk-based explanations of this finding, non-bank facilities are priced with premiums relative to bank-only facilities in the same loan package. These non-bank premiums are substantially larger when a hedge or private equity fund is one of the syndicate members. Consistent with the notion that firms are willing to pay a premium when loan facilities are particularly important to them, the non-bank premiums are larger when borrowing firms face financial constraints and when capital is less available from banks.

Using transactions generally overlooked in the compensation literature—joint ventures, strategic alliances, seasoned equity offerings (SEOs), and spin-offs—we find that, beyond compensation for increases in firm size or complexity, chief executive officers (CEOs) are rewarded for their deal-making activities. Boards pay CEOs for the core motivation of the deal, as well as for deal volume. We find that compensating for volume instead of core value creation occurs under weak board monitoring and that in deal-making firms, neither CEO turnover nor pay-for-performance responds to underperformance. We introduce an input monitoring explanation for these results: boards compensate for deal volume because of their inability to perfectly monitor outputs.