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The investment opportunity set and corporate financing, dividend, and compensation policies

Clifford W. Smith; Ross L. Watts
Journal of Financial Economics 1992 32(3), 263-292
We examine explanations for corporate financing-, dividend-, and compensation-policy choices. We document robust empirical relations among corporate policy decisions and various firm characteristics. Our evidence suggests contracting theories are more important in explaining cross-sectional variation in observed financial, dividend, and compensation policies than either tax-based or signaling theories.

The monotonicity of the term premium

Matthew Richardson; Paul A. Richardson; Tom Smith
Journal of Financial Economics 1992 31(1), 97-105
This paper reexamines existing evidence regarding the monotonicity of the term premium. Using a recently developed approach for testing inequality constraints, we propose and conduct tests for whether the term premium is monotonic and reach different conclusions from those implied by individual t-statistics on term premiums (even under a Bonferroni-type adjustment). Our results generally support McCulloch's (1987) view that the liquidity preference hypothesis remains unrefuted.