We examine capital expenditures in multi-segment firms before and after the “perfect storm” that affected pension plans between 2000 and 2002, when bond yields and stock prices both fell precipitously. Our sample of firms went from having overfunded to underfunded pension plans as a result of the storm. We examine the segment-level relation between investment, Tobin's q, and cash flow both before and after the event. We find mixed evidence on the change in the relation between investment and q, which may be a result of measurement error in q. We find stronger evidence for the conclusion that after the pension storm, firms with underfunded pension plans directed more investment towards segments that produce higher cash flow.

We evaluate methods used to measure abnormal changes in capital expenditures. We examine both statistical tests and models of expected capital expenditures. We find that commonly used research designs yield test statistics that are misspecified, even in random samples. In cases where sample firms share a common characteristic such as extremely low or high investment, size, leverage, return on assets or market-to-book ratio, it is very important to match sample firms to a control group that shares this pre-event characteristic. We also find that using control groups, rather than a single control firm, yields more powerful test statistics.

We investigate the relation between liquidation costs of assets and composition of capital structure for firms that reorganized under Chapter 11 of the Bankruptcy Code. Firms with high liquidation costs emerge from Chapter 11 with relatively low debt ratios. The debt of these firms is more likely to be public and unsecured, and to have less restrictive covenant terms; these firms are also more likely to raise new equity capital. Assets with high liquidation costs thus lead firms to choose capital structures that make financial distress less likely.

We examine managerial compensation and wealth sensitivities around CEO changes. The average new CEO is incentivized to increase the risk of the firm primarily because he holds significantly less stock than his predecessor, and in fact riskier policy choices are subsequently implemented. Similar results are obtained in a subsample of CEO changes that are due to retirements and deaths, which alleviates concerns about endogeneity. Our findings indicate that firms seem to be limited in their ability to mitigate the risk-averse behavior caused by large CEO shareholdings.

We compare CRSP dividend data to data from firms' financial statements in the SEC's EDGAR database. Data screens typically used in the extant literature produce a sample in which about half of the apparent reductions in dividends per share are not actually dividend cuts. Many of the fictitious cuts are due to CRSP misclassifying special dividends as regular dividends. We demonstrate that the fictitious cuts can affect point estimates and inferences in studies of the information content of dividends. We provide a simple filter that eliminates most of the fictitious cuts in our sample – remove dividend cuts from the sample that are preceded by a dividend increase in the prior quarter. This filter produces empirical results that are similar to our sample of true cuts.

Despite the evidence that full funding of defined benefit pension obligations is value maximizing, managerial price and volatility sensitivities (deltas and vegas) do not appear to influence funded status for all except the CFOs of plan sponsors with weak credit ratings (Anantharaman and Lee, 2014). Whether realized total compensation (as opposed to changes in the value of securities held) encourages full funding is an open question. Here we examine the empirical relation between realized managerial compensation and the extent to which plan liabilities are funded, and find that CEO pay bears a significant relation with funded status.

The staged financing hypothesis of Mayers [Mayers, D., 1998. Why firms issue convertible bonds: The matching of financial and real investment options. Journal of Financial Economics 47, 83–102] predicts that investment and financing activity will increase following in the money convertible bond calls. The prediction for out of the money convertible calls is different: no increase is expected. We study the rate of both corporate investment and external financing around forced conversions using benchmarks that are analogous to those recommended by Barber and Lyon [Barber, B., Lyon, J., 1996. Detecting abnormal operating performance: The empirical power and specification of test statistics. Journal of Financial Economics 41, 359–400]. We also examine the cross-section of changes in investment and financing activity. Conversion-forcing firms exhibit an increase in both capital expenditures and debt financing around the year of the convertible bond call; however, the same result holds for the sample firms that conducted out-of-the-money convertible calls. Further, there is no relation between changes in investment activity and changes in debt issuance at the firm level. The evidence is inconsistent with the notion that forced conversions serve as a catalyst for staged financing and investment.