[In a model of the firm in which insiders are privately informed of the firm's prospects and investment is endogenous, this article shows the existence of coarse dividend-signaling equilibria: Dividends partition the space of possible prospects of the firm, and changes in dividends reflect "broad," or nonincremental, changes in these prospects. These equilibria are shown to exist under general preference and technology structures, and it is argued that they closely match the following "anomalous" empirical features of corporate dividend payouts: Dividend changes have nontrivial information effects, yet dividends are smoothed (in a world with cyclic prospects), and dividends are poor predictors of future earnings. Furthermore, in performing comparative statics, this article derives cross-sectional and time-series restrictions on the relation of dividend smoothing to observable firm attributes.]

[We theoretically and empirically address the endogeneity of corporate ownership structure and the cost of debt, with a novel emphasis on the role of control concentration in post-default firm restructuring. Control concentration raises agency costs of debt, and dominant shareholders trade off private benefits of control against higher borrowing costs in choosing their ownership stakes. Based on our theoretical predictions, and using an international sample of syndicated loans and unique dynamic ownership structure data, we present new evidence on the firm- and macro-level determinants of corporate control concentration and the cost of debt.]

[Recent corporate governance reforms focus on the board's independence and encourage equity ownership by directors. We analyze the efficacy of these reforms in a model in which both adverse selection and moral hazard exist at the level of the firm's management. Delegating governance to the board improves monitoring but creates another agency problem because directors themselves avoid effort and are dependent on the CEO. We show that as directors become less dependent on the CEO, their monitoring efficiency may decrease even as they improve the incentive efficiency of executive compensation contracts. Therefore, a board composed of directors that are more independent may actually perform worse. Moreover, higher equity incentives for the board may increase equity-based compensation awards to management.]

[Based on an analysis of the agency risk for bondholders from managerial entrenchment and fraud, we derive and test refutable hypotheses about the influence of managerial agency risk on bond covenants, using a comprehensive database of corporate bonds from the 1993-2007 period. Managerial entrenchment and the risk of managerial fraud significantly influence the use of covenants, in the direction predicted by the agencytheoretic framework. Our analysis highlights the varied effects of entrenchment on different types of agency risks faced by bondholders: Entrenched managers aggravate investment risk, but ameliorate risk from shareholder opportunism. Covenant use also responds efficiently to the quality of information available regarding the risk of managerial fraud.]

In a model of the firm in which insiders are privately informed of the firm's prospects and investment is endogenous, this article shows the existence of coarse dividend-signaling equilibria: Dividends partition the space of possible prospects of the firm, and changes in dividends reflect "broad", or nonincremental, changes in these prospects. These equilibria are shown to exist under general preference and technology structures, and it is argued that they closely match the following "anomalous" empirical features of corporate dividend payouts: Dividend changes have nontrivial information effects, yet dividends are smoothed (in a world with cyclic prospects), and dividends are poor predictors of future earnings. Furthermore, in performing comparative statics, this article derives cross-sectional and time-series restrictions on the relation of dividend smoothing to observable firm attributes.

Based on an analysis of the agency risk for bondholders from managerial entrenchment and fraud, we derive and test refutable hypotheses about the influence of managerial agency risk on bond covenants, using a comprehensive database of corporate bonds from the 1993–2007 period. Managerial entrenchment and the risk of managerial fraud significantly influence the use of covenants, in the direction predicted by the agency-theoretic framework. Our analysis highlights the varied effects of entrenchment on different types of agency risks faced by bondholders: Entrenched managers aggravate investment risk, but ameliorate risk from shareholder opportunism. Covenant use also responds efficiently to the quality of information available regarding the risk of managerial fraud.

[We theoretically and empirically investigate the role of information on the cross section of stock returns and firms' cost of capital when investors face estimation risk and learn from noisy signals of uncertain quality. The resultant equilibrium is an information-dependent conditional CAPM. We find strong empirical support for the model. Innovations in market volatility, oil prices, exchange rates, and dispersion of analysts' forecasts not only help explain the cross section of stock returns, but their influence depends on the stock's systematic estimation risk. Moreover, dividend and share repurchase initiations have significant downward announcement effects on estimated betas and their standard errors.]

We analyze effects of tacit collusion in a dynamic general equilibrium model of oligopolistic sectors with capital investment and real frictions. Through their effects on equilibrium- and off-equilibrium stock prices, fundamental shocks affect incentives for defection from tacit collusion, amplifying the interaction between the real economy and financial markets as well as firms’ risk exposure. The model implies ambiguous relationship between industry concentration and equity returns depending on operating leverage, which helps reconcile conflicting evidence in the literature. We find quantitative and empirical support for novel theoretical predictions regarding the effects of concentration on returns and investment.

We examine the joint optimization of financial leverage and irreversible capacity investment in a real options framework with risky debt and endogenous interest costs. Higher capacity, ceteris paribus, increases operating leverage and default probability, but lowers ex post adjustment costs and generates larger tax shields. A key insight is that financial leverage and capacity are substitutes in the debt market equilibrium. We develop novel predictions about the effects of capital adjustment costs, operating costs, and uncertainty on optimal financial leverage and capacity that may potentially help explain ambiguous empirical results in the literature regarding the determinants of capital structure and investment. Received March 17, 2016; editorial decision July 8, 2017 by Editor Itay Goldstein.

We theoretically and empirically address the endogeneity of corporate ownership structure and the cost of debt, with a novel emphasis on the role of control concentration in post-default firm restructuring. Control concentration raises agency costs of debt, and dominant shareholders trade off private benefits of control against higher borrowing costs in choosing their ownership stakes. Based on our theoretical predictions, and using an international sample of syndicated loans and unique dynamic ownership structure data, we present new evidence on the firm- and macro-level determinants of corporate control concentration and the cost of debt.