This paper develops a specialized principal-agent model of the investor-investment advisor relationship and embeds the standard advisory compensation schedule in the model. Advisors are endowed with information-gathering abilities and investors are endowed with funds. Information-gathering services are traded indirectly through the investor's receipt of portfolio returns net of advisory fees. Model results show that the parameters of the compensation schedule are both a function of the idiosyncracies of an advisor's information services and the degree of risk sharing between the advisor and investor. Several predictions of the model are supported using data on mutual fund advisors. Unsupported predictions may be due to self-selection of advisors by risk tolerance.

We examine the price behavior of the firm's common stock associated with cancelled straight debt offerings. Excluding utilities, we find negative excess returns associated with offering and cancellation announcements. Further, the stronger withdrawal reactions we find, when the funds were to be used for capital expenditures, may signal a decline in profitable investment opportunities. These results are consistent with Miller and Rock's (1985) hypothesis.

Stephen H. Penman, A Comparison of the Information Content of Insider Trading and Management Earnings Forecasts, The Journal of Financial and Quantitative Analysis, Vol. 20, No. 1 (Mar., 1985), pp. 1-17

The impact of corporate taxes on the leverage decision in a competitive market was analyzed in [8[, [9], and the incorporation of personal taxes into the problem structure was achieved in [4], [1] and [10]. In a more recent paper, Miller [6] suggested that the impacts of both corporate and personal taxation could be studied by simultaneously analyzing the supply of and demand for securities in an overall equilibrium framework. DeAngelo and Masulis [2], [3] formalized and extended the implications of Miller's model, but found that given the U.S. tax code, an equilibrium in which positive dividends were featured was not possible over and above the relatively small dividend exclusion provision.

Jonathan S. H. Kornbluth, Joseph D. Vinso, Capital Structure and the Financing of the Multinational Corporation: A Fractional Multiobjective Approach, The Journal of Financial and Quantitative Analysis, Vol. 17, No. 2 (Jun., 1982), pp. 147-178

Capital market equilibrium has been extensively studied in the recent past, mostly in a mean-variance framework. In a perfect capital market with riskless assets and homogenous expectations among risk-averse investors, Sharpe and Lintner have shown that the efficient set of all investors could be described by only two portfolios (or mutual funds):(1) the market portfolio(2) the riskless asset.

The Markowitz-Sharpe market model has been extensively applied to the study of price behavior of American common stocks. In this paper an international market model will be used assuming that the return on any security is a linear function of the return on the world market portfolio. A justification for this approach lies in the International Asset Pricing Model (IAPM) proposed by Solnik [14] and [15]. This market model is by no means the only stochastic process of security returns consistent with the IAPM, but it is the most simple and straightforward extension of the traditional approach to domestic markets.

Treasury Inflation-Protected Securities (TIPS) are frequently thought of as risk-free real bonds. Using no-arbitrage term structure models, we show that TIPS yields exceeded risk-free real yields by as much as 100 basis points when TIPS were first issued and up to 300 basis points during the 2007–2008 financial crisis. This spread predominantly reflects the poorer liquidity of TIPS relative to nominal Treasury securities. Other factors, including the indexation lag and the embedded deflation protection in TIPS, play a much smaller role. Ignoring this spread also significantly distorts the informational content of TIPS break-even inflation, a widely used proxy for expected inflation.

This paper presents the first empirical evidence showing that the marriage of a member of the controlling family adds value to public corporations. The results, based on a uniquely comprehensive data set from Thailand, show that the family firm’s stock price increases when the partner is from either a prominent business or a political family. Abnormal returns tend to be higher for firms whose operation depends on extensive networks. In contrast, marriages to ordinary citizens are not associated with any abnormal returns. These findings are generally supportive of the value of networks in general and marriage in particular.

Stock flippers pose a problem for underwriters of initial public offerings (IPOs). They subscribe to the issue, but immediately resell their shares, which may depress the aftermarket price. This paper presents a model of how stock flippers affect IPO pricing. The model shows that the underwriter chooses whether to price the issue as a cold, weak, or hot IPO. Stock flippers have the greatest effect on pricing in weak IPOs and provide an explanation for underwriter stabilization. In contrast to existing models of stabilization, the underwriter gains from after-market purchases, particularly if the contract with the issuer includes an over-allotment option. The over-allotment option encourages a lower offer price, which may lead to under-pricing. These results correspond to recent findings on IPO returns and underwriter stabilization activities.