Firms facing significant business risks have incentives to mitigate the costs of these risks by adjusting their capital structures. This paper investigates this link by analyzing the exposures of multinational firms to political risk. The evidence indicates that returns on investment in politically risky countries are more volatile than returns elsewhere. Multinational firms reduce their leverage in response to these political risks: a one standard deviation increase in foreign political risk is associated with 3.5% reduced leverage. The effect of foreign political risks on leverage is most pronounced for firms in industries whose returns are most susceptible to political influence.

We use the control function approach to identify the average treatment effect and the effect of treatment on the treated in models with a continuous endogenous regressor whose impact is heterogeneous. We assume a stochastic polynomial restriction on the form of the heterogeneity, but unlike alternative nonparametric control function approaches, our approach does not require large support assumptions.

This paper establishes the existence of a previously overlooked relationship between agglomeration and hours worked. Among nonprofessionals, hours worked decrease with the density of workers in the same occupation. Among professionals, the relationship is positive. This relationship is stronger for the young than for the middle-aged. Moreover, young professional hours worked are especially sensitive to the presence of rivals. The paper shows that these patterns are consistent with the selection of hard workers into cities and with the high productivity of agglomerated labor. The behavior of young professionals is also consistent with the presence of keen rivalry in larger markets, a kind of urban rat race.

We study the dynamic relation between aggregate mutual fund flow and market-wide volatility. Using daily flow data and a VAR approach, we find that market volatility is negatively related to concurrent and lagged flow. A structural VAR impulse response analysis suggests that shock in flow has a negative impact on market volatility: An inflow (outflow) shock predicts a decline (an increase) in volatility. From the perspective of volatility–flow relation, we find evidence of volatility timing for recent period of 1998–2003. Finally, we document a differential impact of daily inflow versus outflow on intraday volatility. The relation between intraday volatility and inflow (outflow) becomes weaker (stronger) from morning to afternoon.

Rethinking Global Environmental Governance to Deal with Climate Change: The Multiple Logics of Global Collective Action by Daniel C. Esty. Published in volume 98, issue 2, pages 116-21 of American Economic Review, May 2008

Using the longest event window, we find that public target shareholders receive a 63% (14%) higher premium when the acquirer is a public firm rather than a private equity firm (private operating firm). The premium difference holds with the usual controls for deal and target characteristics, and it is highest (lowest) when acquisitions by private bidders are compared to acquisitions by public companies with low (high) managerial ownership. Further, the premium paid by public bidders (not private bidders) increases with target managerial and institutional ownership.

This paper presents a new model for the valuation of European options, in which the volatility of returns consists of two components. One is a long-run component and can be modeled as fully persistent. The other is short-run and has a zero mean. Our model can be viewed as an affine version of Engle and Lee [1999. A permanent and transitory component model of stock return volatility. In: Engle, R., White, H. (Eds.), Cointegration, Causality, and Forecasting: A Festschrift in Honor of Clive W.J. Granger. Oxford University Press, New York, pp. 475–497], allowing for easy valuation of European options. The model substantially outperforms a benchmark single-component volatility model that is well established in the literature, and it fits options better than a model that combines conditional heteroskedasticity and Poisson–normal jumps. The component model's superior performance is partly due to its improved ability to model the smirk and the path of spot volatility, but its most distinctive feature is its ability to model the volatility term structure. This feature enables the component model to jointly model long-maturity and short-maturity options.

We prove existence of equilibrium in a continuous-time securities market in which the securities are potentially dynamically complete: the number of securities is at least one more than the number of independent sources of uncertainty. We prove that dynamic completeness of the candidate equilibrium price process follows from mild exogenous assumptions on the economic primitives of the model. Our result is universal, rather than generic: dynamic completeness of the candidate equilibrium price process and existence of equilibrium follow from the way information is revealed in a Brownian filtration, and from a mild exogenous nondegeneracy condition on the terminal security dividends. The nondegeneracy condition, which requires that finding one point at which a determinant of a Jacobian matrix of dividends is nonzero, is very easy to check. We find that the equilibrium prices, consumptions, and trading strategies are well-behaved functions of the stochastic process describing the evolution of information. We prove that equilibria of discrete approximations converge to equilibria of the continuous-time economy.

This paper uses survival analysis to investigate the timing of a firm’s decision to issue for the first time in the public bond market. We find that firms that are more creditworthy and have higher demand for external funds issue their first public bond earlier. We also find that issuing private bonds or taking out syndicated loans is associated with a faster entry to the public bond market. According to our results, the relationships that firms develop with investment banks in connection with their private bond issues and syndicated loans further speed up their entry to the public bond market. Finally, we find that a firm’s reputation has a “U-shaped” effect on the timing of a firm’s bond IPO. Consistent with Diamond’s reputational theory, firms that establish a track record of high creditworthiness as well as those that establish a track record of low creditworthiness enter the public bond market earlier than firms with intermediate reputation.