[We investigate the trade-off between incentive provision and inefficient rollover freezes for a firm financed with short-term debt. First, debt maturity that is too short-term is inefficient, even with incentive provision. The optimal maturity is an interior solution that avoids excessive rollover risk while providing sufficient incentives for the manager to avoid riskshifting when the firm is in good health. Second, allowing the manager to risk-shift during a freeze actually increases creditor confidence. Debt policy should not prevent the manager from holding what may appear to be otherwise low-mean strategies that have option value during a freeze. Third, a limited but not perfectly reliable form of emergency financing during a freeze—a "bailout"—may improve the terms of the trade-off and increase total ex ante value by instilling confidence in the creditor markets. Our conclusions highlight the endogenous interaction between risk from the asset and liability sides of the balance sheet.]

This paper analyzes the properties of standard estimators, tests, and confidence sets (CS's) for parameters that are unidentified or weakly identified in some parts of the parameter space. The paper also introduces methods to make the tests and CS's robust to such identification problems. The results apply to a class of extremum estimators and corresponding tests and CS's that are based on criterion functions that satisfy certain asymptotic stochastic quadratic expansions and that depend on the parameter that determines the strength of identification. This covers a class of models estimated using maximum likelihood (ML), least squares (LS), quantile, generalized method of moments, generalized empirical likelihood, minimum distance, and semi-parametric estimators. The consistency/lack-of-consistency and asymptotic distributions of the estimators are established under a full range of drifting sequences of true distributions. The asymptotic sizes (in a uniform sense) of standard and identification-robust tests and CS's are established. The results are applied to the ARMA(1, 1) time series model estimated by ML and to the nonlinear regression model estimated by LS. In companion papers, the results are applied to a number of other models.

We investigate the trade-off between incentive provision and inefficient rollover freezes for a firm financed with short-term debt. First, debt maturity that is too short-term is inefficient, even with incentive provision. The optimal maturity is an interior solution that avoids excessive rollover risk while providing sufficient incentives for the manager to avoid risk-shifting when the firm is in good health. Second, allowing the manager to risk-shift during a freeze actually increases creditor confidence. Debt policy should not prevent the manager from holding what may appear to be otherwise low-mean strategies that have option value during a freeze. Third, a limited but not perfectly reliable form of emergency financing during a freeze—a “bailout”—may improve the terms of the trade-off and increase total ex ante value by instilling confidence in the creditor markets. Our conclusions highlight the endogenous interaction between risk from the asset and liability sides of the balance sheet.

Industry returns cannot be explained fully by well-known asset pricing models. This study reveals that common factors extracted from industry returns carry significant risk premiums that go beyond the explanatory power of size, book-to-market (BM) ratios, and momentum. In particular, this study shows that (1) the small-firm effect is significant only for firms whose market capitalization is below their industry average; (2) the BM effect is an intra-industry phenomenon; (3) a one-year momentum effect is significant only for firms whose BM ratio is smaller than the industry average and limited to non-January months; and (4) there is seasonality in all effects that cannot be explained by risk-based asset-pricing models. Neither rational nor behavioral theories alone can explain industry returns, and it is perhaps too hasty to attribute asset pricing anomalies to a single driving force.

ABSTRACT This study examines the effect that two key balanced scorecard (BSC) framework elements—causal linkages between strategic objectives in the strategy map and performance measures categorized by scorecard perspective—have on managers' ability to interpret the strategic relevance of external information and use this information to evaluate the appropriateness of an organization's strategy. We conduct two experiments, finding that presenting a set of strategic objectives as a strategy map enhances both managers' information relevance and strategy appropriateness judgments. We attribute this improvement to the explication of causal linkages between objectives in a strategy map. In contrast, presenting performance measures categorized by scorecard perspective only improves managers' strategy appropriateness judgments when the managers are provided with a set of strategic objectives that are not presented in a strategy map structure. Our study contributes to the literature by demonstrating that these two elements of the BSC framework have differential decision-facilitating impacts on managers' strategic judgments. Data Availability: Data are available from the authors upon request.

ABSTRACT This paper examines the impact of hedge fund activism on corporate tax avoidance. We find that relative to matched control firms, businesses targeted by hedge fund activists exhibit lower tax avoidance levels prior to hedge fund intervention, but experience increases in tax avoidance after the intervention. Moreover, findings suggest that the increase in tax avoidance is greater when activists have a successful track record of implementing tax changes and possess tax interest or knowledge as indicated by their Securities and Exchange Commission (SEC) 13D filings. We also find that these greater tax savings do not appear to result from an increased use of high-risk and potentially illegal tax strategies, such as sheltering. Taken together, the results suggest that shareholder monitoring of firms, in the form of hedge fund activism, improves tax efficiency. JEL Classifications: G32; G34; H26. Data Availability: Data are available from sources identified in the text.