Costs are sticky on average, that is, they fall less for sales decreases than they rise for equivalent sales increases. We examine the effect of this asymmetric cost behavior on a firm's dividend policy. Given investors’ aversion to dividend cuts, we predict that firms with higher resource adjustment costs and stickier costs pay lower dividends than their peers because they are less able to sustain any higher level of dividend payouts in the future. We find evidence consistent with this prediction. Further, using a regression discontinuity design that exploits variation in labor adjustment costs generated by close‐call union elections, we provide evidence suggesting that the negative relation between cost stickiness and dividend payouts is driven by resource adjustment costs. Our paper sheds new light on the determinants of dividend policy and demonstrates the role of cost behavior in corporate decisions.

We study rating shopping on the MBS market. Outside of AAA, losses are higher on single-rated tranches than on multi-rated ones, and yields predict future losses for single-rated tranches, but not for multi-rated ones. Conversely, ratings have less explanatory power for single-rated tranches. These results suggest that single-rated tranches have been “shopped,” whereby pessimistic ratings never reach the market. For AAA-rated MBS, by contrast, 93% receive two or three such ratings, and those ratings agree 97% of the time. This ratings convergence suggests that agencies “cater” to investors, who cannot purchase a tranche unless it has multiple AAA ratings.

In this paper, we develop new insights about the dynamics of corporate dividend policy by performing the natural experiment of comparing corporate dividend policies in Hong Kong and the U.S., two economies where the tax regime and equity ownership structure are significantly different. Our empirical results can be summarized as follows. First, a test of the Lintner model reveals that the extent of dividend smoothing by firms in Hong Kong is significantly less than those in the U.S. Second, the signaling effects of dividend changes on stock returns are stronger in the U.S. compared to those in Hong Kong. Third, our logit analysis of the determinants of dividend changes indicates that, while the lagged dividend yield significantly affects dividend changes in both countries in the same fashion, prior year stock returns have opposite effects on dividend changes in the two countries. Finally, the extent of dividend smoothing is not systematically related to blockholder equity ownership in either country. Overall, our results suggest that, compared to U.S. firms, Hong Kong firms pursue a more flexible dividend policy commensurate with earnings, and that the differences between the dividend policies of firms in the two countries are consistent with the signaling implications of the differences in the tax regime across the two countries.

We compare the structure and performance of private (non-GSE) mortgage-backed securities sold by large issuers vs. those sold by small issuers over the period 2000–2006. Securities sold by large issuers have less subordination—a greater fraction of the deal receiving AAA rating—than those sold by small issuers. Prices for AAA-rated and non-AAA rated tranches sold by large issuers fell more when the market turned down than those sold by small issuers, and this difference was concentrated among tranches issued between 2004 and 2006. These results suggest that rating agencies grant favorable ratings to large issuers, especially during market booms.

Using unique U.S. Census data sets, we analyze how entrepreneurial firms’ product market characteristics affect their choice between going public, being acquired, or remaining private. Size, total factor productivity (TFP), sales growth, capital expenditure, market share, access to private funding, and human capital intensiveness significantly increase a private firm’s likelihood of an initial public offering (IPO) relative to an acquisition. Firms in industries with less information asymmetry and higher stock liquidity are more likely to choose an IPO over an acquisition. While TFP peaks around either form of exit, the rate of increase in TFP prior to acquisitions and the subsequent decrease is smaller than that around IPOs.

Initial yields on both AAA‐rated and non‐AAA rated mortgage‐backed security (MBS) tranches sold by large issuers are higher than yields on similar tranches sold by small issuers during the market boom years of 2004 to 2006. Moreover, the prices of MBS sold by large issuers drop more than those sold by small issuers, and the differences are concentrated among tranches issued during 2004 to 2006. These results suggest that investors price the risk that large issuers received more inflated ratings than small issuers, especially during boom periods.