We re-examine the claim that many corporations are underleveraged in that they fail to take full advantage of debt tax shields. We show prior results suggesting underleverage stems from biased estimates of tax benefits from interest deductions. We develop improved estimates of marginal tax rates using a non-parametric procedure that produces more accurate estimates of the distribution of future taxable income. We show that additional debt would provide firms with much smaller tax benefits than previously thought, and when expected distress costs and difficult-to-measure non-debt tax shields are also considered, it appears plausible that most firms have tax-efficient capital structures.

We review recent literature on the role of financial reporting transparency in reducing governance-related agency conflicts among managers, directors, and shareholders, as well as in reducing agency conflicts between shareholders and creditors, and offer researchers some suggested avenues for future research. Key themes include the endogenous nature of debt contracts and governance mechanisms with respect to information asymmetry between contracting parties, the heterogeneous nature of the informational demands of contracting parties, and the heterogeneous nature of the resulting governance and debt contracts. We also emphasize the role of a commitment to financial reporting transparency in facilitating informal multiperiod contracts among managers, directors, shareholders, and creditors.

ABSTRACT This paper investigates whether the business press serves as an information intermediary. The press potentially shapes firms' information environments by packaging and disseminating information, as well as by creating new information through journalism activities. We find that greater press coverage reduces information asymmetry (i.e., lower spreads and greater depth) around earnings announcements, with broad dissemination of information having a bigger impact than the quantity or quality of press‐generated information. These results are robust to controlling for firm‐initiated disclosures, market reactions to the announcement, and other information intermediaries. Our findings suggest that the press helps reduce information problems around earnings announcements.