With zero capital structure rebalancing costs, dynamic trade-off theory predicts that firms stay at their leverage targets with more profitable firms staying at higher leverage. This prediction is rejected by the robustly negative correlation between leverage and profitability. When rebalancing costs are added to this theory, it predicts a positive leverage–profitability correlation only in periods where companies pay these costs and actively rebalance their capital structures. However, we show that the correlation is negative when firms issue debt and distribute the proceeds to shareholders—precisely the case where the theory predicts it should be positive. Our results thus resurrect the leverage–profitability puzzle.

We test whether high-frequency net-debt issuers (HFIs)—public industrial companies with relatively low issuance costs and high debt-financing benefits—manage leverage toward long-run targets. Our answer is they do not: (1) the leverage–profitability correlation is negative even in quarters with leverage rebalancing; (2) the speed-of-adjustment to target leverage deviations is no higher for HFIs than for low-frequency net-debt issuers; and (3) under-leveraged HFIs do not speed up rebalancing activity in significant investment periods. Thus, even in the subset of firms most likely to follow dynamic trade-off theory, the theory does not appear to hold.

This study collates potential economic effects of mandated disclosure and reporting standards for corporate social responsibility (CSR) and sustainability topics. We first outline key features of CSR reporting. Next, we draw on relevant academic literatures in accounting, finance, economics, and management to discuss and evaluate the potential economic consequences of a requirement for CSR and sustainability reporting for U.S. firms, including effects in capital markets, on stakeholders other than investors, and on firm behavior. We also discuss issues related to the implementation and enforcement of CSR and sustainability reporting standards as well as two approaches to sustainability reporting that differ in their overarching goals and materiality standards. Our analysis yields a number of insights that are relevant for the current debate on mandatory CSR and sustainability reporting. It also points scholars to avenues for future research.

We offer a model and evidence showing that private debtholders play a key role in setting the endogenous asset value threshold below which corporations declare bankruptcy. As predicted by the model, we find that the recovery rate at emergence from bankruptcy on all of the firm’s debt taken together is increasing in the pre-bankruptcy share of private debt in all debt. We further find evidence consistent with a two-threshold model in which private debtholders force default in some cases and shareholders default strategically in others.

In many markets, transaction prices are determined in auctions. In the most common form, prospective buyers compete by submitting bids to a seller. Each bid is an offer to buy that states a quantity and a maximum price. The seller then allocates the available supply among those offering the highest prices exceeding the seller's asking price. The actual price paid by a successful bidder depends on a pricing rule, usually selected by the seller: two common pricing rules are that each successful bidder pays the price bid; or they all pay the same price, usually the highest rejected bid or the lowest accepted bid. Auctions have been used for millennia, and remain the simplest and most famil-iar means of price determination for multilateral trading without intermediary `market makers ' such as brokers and specialists. Their trading procedures, which simply process bids and offers, are direct extensions of the usual forms of bilateral bargaining. Auctions also implement directly the demand submission procedures used in Walrasian models of markets. They therefore have prominent roles in the theory of exchange and in studies of the effects of economic institutions on the volume and terms of trade. Their allocative ef-®ciency in many contexts ensures their continued prominence in economic theory. They are also favored in experimental designs investigating the predictive power of economic theories. Auctions are apt subjects for applications of game theory because they present ex-plicit trading rules that largely ®x the `rules of the game'. Moreover, they present sub-stantive problems of strategic behavior of practical importance. They are particularly valuable as illustrations of games of incomplete information because bidders ' private information is the main factor affecting strategic behavior. The simpler forms of auctions induce normal-form games that are essentially `solved ' by applying directly the basic

We consider estimation and inference on average treatment effects under unconfoundedness conditional on the realizations of the treatment variable and covariates. Given nonparametric smoothness and/or shape restrictions on the conditional mean of the outcome variable, we derive estimators and confidence intervals (CIs) that are optimal in finite samples when the regression errors are normal with known variance. In contrast to conventional CIs, our CIs use a larger critical value that explicitly takes into account the potential bias of the estimator. When the error distribution is unknown, feasible versions of our CIs are valid asymptotically, even when <a:math xmlns:a="http://www.w3.org/1998/Math/MathML" display="inline"> <a:msqrt> <a:mi>n</a:mi> </a:msqrt> </a:math>‐inference is not possible due to lack of overlap, or low smoothness of the conditional mean. We also derive the minimum smoothness conditions on the conditional mean that are necessary for <c:math xmlns:c="http://www.w3.org/1998/Math/MathML" display="inline"> <c:msqrt> <c:mi>n</c:mi> </c:msqrt> </c:math>‐inference. When the conditional mean is restricted to be Lipschitz with a large enough bound on the Lipschitz constant, the optimal estimator reduces to a matching estimator with the number of matches set to one. We illustrate our methods in an application to the National Supported Work Demonstration.

Companies have collected billions in premiums from privately sold put options written on their own stock. It is puzzling that counterparties, investment banks, would agree to make such transactions with better-informed companies which have extraordinary ability to time the market as documented by Jenter et al. (2011). To resolve this puzzle, we develop a model that shows that investment banks, by offering to buy put options from better-informed parties, receive private information about issuing companies. Our model also incorporates the practice of firms (such as Microsoft) of sometimes repurchasing their own put options and thus providing additional private information to investment banks. Empirically, we find support for our theory from an abnormal 9% increase in the stock prices and a 40% increase in the trading volumes around the put sales. Examination of 13D filings reveals that trading by upper management insiders cannot completely account for the change in volume.

This paper investigates whether gender-diverse bank boards can play a role in preventing costly misconduct episodes. We exploit the fines received by European banks from US regulators to reduce endogeneity issues related to supervisory and governance mechanisms. We show that greater female representation significantly reduces the frequency of misconduct fines, equivalent to savings of $7.48 million per year. Female directors are more influential when they reach a critical mass and are supported by women in leadership roles. The mechanism through which gender diversity affects board effectiveness in preventing misconduct stems from the ethicality and risk aversion of the female directors, rather than their contribution to diversity. The findings are robust to alternative model specifications, proxies for gender diversity, reverse causality, country and bank controls, and sub-sample analyses.

One in five consumer credit accounts incurs late fees each quarter. Evidence on the efficacy of regulations to improve behavior through enhanced disclosure of financial product attributes is mixed. We test a novel form of disclosure that provides borrowers with a personalized measure of their creditworthiness. In a field experiment with over 400,000 student loan borrowers, treatment group members received communications about the availability of their FICO Score. The intervention significantly reduced late payments and increased borrowers' FICO Scores. Survey data show treatment group members were less likely to overestimate their FICO Scores, suggesting the intervention may correct for overoptimism.