[Recent winners have temporarily higher loadings than recent losers on the growth rate of industrial production. The loading spread derives mostly from the positive loadings of winners. The growth rate of industrial production is a priced risk factor in standard asset pricing tests. In many specifications, this macroeconomic risk factor explains more than half of momentum profits. We conclude that risk plays an important role in driving momentum profits.]

Historical market-to-book has been shown to explain current leverage. Prior studies attribute the evidence to market timing. This study shows that with the presence of time-varying targets and adjustment costs, historical market-to-book has a significant impact on leverage even when firms do not time the market. The historical values of alternative market timing proxies, such as insider sales and the market sentiment index, are shown to have no effects on leverage while the historical values of alternative growth-option proxies do have effects. Overall, the evidence is largely consistent with a partial adjustment model of leverage.

Recent winners have temporarily higher loadings than recent losers on the growth rate of industrial production. The loading spread derives mostly from the positive loadings of winners. The growth rate of industrial production is a priced risk factor in standard asset pricing tests. In many specifications, this macroeconomic risk factor explains more than half of momentum profits. We conclude that risk plays an important role in driving momentum profits. The Author 2008. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please email: [email protected]., Oxford University Press.

The risk of customers affects corporate financial policy by limiting the ability of firms to securitize customer receivables. We find that firms with riskier receivables, based on the credit risk and diversification of the firms' principal customers, have lower financing capacity and lower leverage in their asset-backed securitizations. Because securitizations are designed to create a very safe claim by separating the risk of the securitized assets from the risk of the originating firms, increases in the risk of the receivables directly inhibit originating firms' ability to securitize assets and indirectly inhibit the originating firms' access to external finance. The study highlights a novel link between the financing of supplier firms and the financial health of their customers and shows how an increase in risk can limit access to external capital.

We document that firms experience large negative stock returns during, and positive returns following, the first informational events after forced CEO turnovers. This V-shaped return pattern is driven by the strategic sequential disclosure of bad news and good news, aligned with incoming CEOs’ incentives to manage expectations. The pattern is more pronounced when these incentives are stronger, such as when firms earn higher stock returns and have higher valuation uncertainty leading up to the informational events. Evidence from firms’ earnings surprises, analysts’ forecast revisions, and large language model-based measures of disclosure behavior indicates that incoming CEOs often initially release bad news about realized and short-term earnings, projecting a broadly pessimistic outlook for the firm’s future performance, and subsequently disclose favorable news about longer-term earnings prospects. Our findings suggest that investors make the costly mistake of failing to discern the incentives behind managers’ disclosure.

Models of political risk predict that increases in political uncertainty cause stock prices to fall, especially for politically sensitive firms. We use the event of the Bo Xilai political scandal in 2012 in China as an exogenous shock to identify the impact of political uncertainty on asset prices. We document that the Bo scandal caused a significant drop in stock prices, especially for firms that are more politically sensitive. Further analysis shows that the stock price drop is mainly driven by a change in discount rate, providing strong support for the existence of priced political risk.

We derive and test q-theory implications for cross-sectional stock returns. Under constant returns to scale, stock returns equal levered investment returns, which are tied directly to firm characteristics. When we use generalized method of moments to match average levered investment returns to average observed stock returns, the model captures the average stock returns of portfolios sorted by earnings surprises, book-to-market equity, and capital investment. When we try to match expected returns and return variances simultaneously, the variances predicted in the model are largely comparable to those observed in the data. However, the resulting expected return errors are large.

Contrary to recent accounts of off‐balance‐sheet securitization by financial firms, we show that asset securitization by nonfinancial firms provides a valuable form of financing for shareholders without harming debtholders. Using data from firms’ SEC filings, we find that securitization is attractive to firms in the middle of the credit quality distribution, which are the firms with the most to gain. Upon initiation, firms experience positive abnormal stock returns and zero abnormal bond returns, and largely use the securitization proceeds to repay existing debt. Securitization minimizes financing costs by reducing expected bankruptcy costs and providing access to segmented credit markets.

Earlier research indicates that attracting pre-offer investor attention yields long-term benefits to an initial public offering (IPO) issuer. For investors with limited attention, we model a way in which firms may attract attention: through underpricing their IPO, and using the expected allocations of underpriced shares to induce investors to attend the road show and consider the offering. Our model generates a novel set of predictions regarding the relationship between initial returns and attention, retention, expansion, and the benefits of attention, plus the asymmetry of the relationship with attention. Consistent with our model, investors’ attention is positively related to both initial returns and the magnitude of price revision. The relationship between attention and underpricing is asymmetric, and stronger when ex ante uncertainty is greater. Our work has implications regarding direct listings, is consistent with partial adjustment to public information, explains the relative unpopularity of gray market/when-issued trading and predicts that, even if the JOBS Act leads to more active pre-IPO trading (through crowdinvesting/equity crowdfunding), underpricing will still occur.