This paper examines the costs, wealth effects, and determinants of international capital raising for a sample of 260 public debt issues made by non-U.S. firms in the Yankee bond market. We find that investors demand economically significant premiums on bonds issued by firms that are located in countries that do not protect investors' rights and do not have a prior history of ongoing disclosure. The results provide support for the literature that suggests better legal protections and more detailed information disclosure increases the price investors will pay for financial assets. Journal of Economic Literature Classification Numbers: F3, G1

The paper examines the relation between the architecture of an economy's financial system—its degree of market orientation—and economic performance in the real sector. I find that while market-based systems outperform bank-based systems among countries with developed financial sectors, bank-based systems fare better among countries with underdeveloped financial sectors. Countries dominated by small firms grow faster in bank-based systems and those dominated by larger firms in market-based systems. The findings suggest that recent trends in financial development policies that indiscriminately prescribe market-oriented financial-system architecture to emerging and transition economies might be misguided because suitable financial architecture, in and of itself, could be a source of value. Journal of Economic Literature Classification Numbers: G1, G21, O1, 04

We provide a new theory of the role of banks as catalysts for industrialization. In their influential analysis of continental European industrialization, Gerschenkron and Schumpeter argued that banks promoted the creation of new industries. We formalize this role of banks by introducing financial intermediaries into a “big push” model. We show that banks may act as catalysts for industrialization provided they are sufficiently large to mobilize a critical mass of firms and that they possess sufficient market power to make profits from coordination. The theory provides simple conditions that help explain why banks seem to play a creative role in some but not in other emerging markets. The model also shows that universal banking helps to reduce the cost of acting as catalyst. Journal of Economic Literature Classification Numbers: G21, N2, O14, O16.

Our data show that nearly all firms borrow for the first time in their life from a single bank, but soon afterward some of them start borrowing from additional banks. Duration analysis shows that the likelihood of a firm substituting a single relationship with multiple relationships increases with the duration of that relationship. It also shows that this substitution is more likely to occur for firms with more growth opportunities and for firms with poor performance. The analysis of the ex post effects of the initiation of multiple relationships, in turn, shows that firms with higher levels of investment prior to the initiation of multiple relationships increase their investment even further when they start to borrow from multiple banks and that firms with poor prior performance continue to perform poorly afterward. These results suggest that concerns with hold-up costs, together with an unwillingness by the incumbent bank to increase its exposure to a firm because of its past poor performance, are the key reasons for these firms to initiate an additional relationship this early in their life. Journal of Economic Literature Classification Numbers: G21, G32.

This paper examines seasoned equity offerings in France. Even though a rights offering is the primary flotation method, French companies are increasingly using the relatively expensive public offering method. We show that the market reaction to the announcement of seasoned equity issues is significantly negative for rights issues and insignificantly negative for public offerings. Our results suggest that the adverse selection effect is greater for rights issues than for public offerings, due to stronger underwriter certification for the public offerings. We find that the share price effect is positively related to blockholders take-up renouncements for firms with prior concentrated ownership. For these firms, the favourable ownership dispersion effect offsets the adverse selection effect

This paper delineates the simultaneous impact of non-anticipated information on mean and variance of the intraday return process by including appropriate variables accounting for the news flow into both the mean and the variance function. This allows us to differentiate between the consistent price reaction to surprising news and the traders' uncertainty about the precise price impact of this information. Focussing on the US employment report, we find that headline information is almost instantaneously incorporated into T-bond futures prices. Nevertheless, large surprises, and ‘bad’ news in particular, create considerable uncertainty. In contrast, if surprises in related headlines cross-validate each other, less room for differences of opinion is left and hence volatility is decreased

The positive relation of returns with Book-to-Market ratio ( BE / ME ) and their negative relation withMarket Value( MVE ) remains strong under a general stochastic discount function (SDF) that does not depend on a specific asset pricing model and avoids potentially serious simultaneity biases inherent in the Fama and French three-factor model. However, we find that SDF s that include the equivalent of the HML portfolio do not span all asset sub-spaces, even with additional conditioning information. Finally, macro and financial variables we introduce to the pricing functions do not offer an alternative explanation of the BE / ME effect.

In this study we investigate the role of leverage in disciplining overinvestment problems. We measure the relationships between leverage, Tobin's q and corporate governance characteristics for Dutch listed firms. Besides, our empirical analysis tests for determinants of leverage from tax and bankruptcy theories. Representing growth opportunities, q is expected to be an agency-based determinant of leverage. Simultaneously, q represents firm value, which is determined by leverage and governance structures. We tes a structural equations model in which we deal with this simultaneous nature of the relation between leverage and q . Our results indicate that Dutch managers avoid the disciplining role of debt, when they are most likely to overinvest. Leverage is mainly determined by tax advantages and bankruptcy costs. In addition, we test the impact of leverage on excess investment.We do not find a difference in the influence of leverage on investment between potential overinvestors and other firms. This confirms that the disciplinary role of leverage in Dutch firms is absent.

This paper studies the optimal combination of debt and dividend commitments in an agency model of the firm. Financial policy is relevant because ex-post information asymmetryrequires managerial rewards to depend on the ability to meet financial commitments. If perquisite or inside information problems exist in isolation, debt-based incentives as assumed inprevious studies result endogenously. If the problems exist simultaneously, dividends can beoptimal even when they appear excessively costly as a signal and unduly lenient as a disciplining device. The reason is that the set of dynamically consistent rewards increases when debt commitments are augmented with dividend commitments, and a larger set of ex-post rewards is more valuable as ex-ante decisions become more complex