We examine how accounting‐based compensation plans influence a firm's contracts with its creditors. After granting long‐term accounting‐based compensation plans (LTAPs) to CEOs, firms pay lower spreads and have fewer restrictive covenants in new bank loans. Mechanisms leading to lower borrowing cost include improvements in debt repayment ability, reduced shareholder‐debtholder conflicts, and reduced risk‐taking incentives. Creditors view LTAPs as a substitute for monitoring, adjust covenant design based on LTAP features, and value plans with concave performance‐payout functions and reasonable performance targets. A firm's credit rating improves and CDS spread declines after LTAP grants, suggesting that LTAPs help reduce firms' credit risk.

This paper investigates whether top-tier M&A investment bankers (financial advisors) create value for acquirers with different financial conditions in both the short and long term via analyzing 3420 US deals during 1990–2012. In this paper, deals are divided into three groups based on acquirer financial constraints – acquisitions by constrained, neutral and unconstrained firms. We find that the effects of top-tier bankers are dependent on acquirer financial conditions. Specifically, top-tier advisors improve performance for constrained acquirers rather than neutral, and unconstrained acquirers. Our results show that top-tier investment bankers improve constrained acquirers’ short- (5 days) and long-term (36 months) performance by 1.45% and 24.27% respectively, after controlling for firm, deal and market characteristics. For deals with investment banker involvement, constrained acquirers advised by top-tier advisors have the lowest deal completion rate, and pay the lowest bid premiums; while unconstrained acquirers that retain top-tier investment bankers have the highest deal completion rate, and pay relatively high bid premiums. Our findings imply that constrained acquirers tend to retain top-tier investment bankers to gain superior synergy, while unconstrained acquirers appear to retain top-tier investment bankers to ensure the deal completion.

We find evidence consistent with previously unrecognized market manipulation by broker-dealers. Specifically, we show that pre-trade hedging, which is distinct from front-running, alters prices at which derivative trades occur. We show this behavior is intentional by exploiting variation in the design of structured equity products (SEPs). We find positive abnormal returns on SEP pricing dates for which issuers benefit from altering closing stock prices but no such returns on pricing dates of otherwise similar SEPs. We also show that large buy trades near the close of trading are more frequent when SEP issuers have incentives to alter closing stock prices.

Time series momentum (TSM) refers to the predictability of the past 12-month return on the next one-month return and is the focus of several recent influential studies. This paper shows that asset-by-asset time series regressions reveal little evidence of TSM, both in- and out-of-sample. While the t-statistic in a pooled regression appears large, it is not statistically reliable as it is less than the critical values of parametric and nonparametric bootstraps. From an investment perspective, the TSM strategy is profitable, but its performance is virtually the same as that of a similar strategy that is based on historical sample mean and does not require predictability. Overall, the evidence on TSM is weak, particularly for the large cross section of assets.