Abstract In both corporate finance and asset pricing empirical work, researchers are often confronted with panel data. In these data sets, the residuals may be correlated across firms and across time, and OLS standard errors can be biased. Historically, the two literatures have used different solutions to this problem. Corporate finance has relied on clustered standard errors, while asset pricing has used the Fama-MacBeth procedure to estimate standard errors. This paper examines the different methods used in the literature and explains when the different methods yield the same (and correct) standard errors and when they diverge. The intent is to provide intuition as to why the different approaches sometimes give different answers and give researchers guidance for their use.

This paper conducts powerful new tests of whether debt can mitigate the effects of agency and information problems. We focus on emerging market firms for which pyramid ownership structures create potentially extreme managerial agency costs. Our tests incorporate both traditional financial statement data and new data on global debt contracts. Our analysis is mindful of the potential endogeneity between debt, ownership structure, and value, and takes into account differences in the debt capacity of a firm’s assets in place and future growth opportunities. The results indicate that the incremental benefit of debt is concentrated in firms with high expected managerial agency costs that are also most likely to have overinvestment problems resulting from high levels of assets in place or limited future growth opportunities. Subsequent internationally syndicated term loans are particularly effective at creating value for these firms. Our results support the recontracting hypothesis that equity holders value compliance with monitored covenants, particularly when firms are likely to overinvest.

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In this paper, we develop and test a theoretical model of multi-market trading to explain the differences in the foreign share of trading volume of internationally cross-listed stocks. The model derives an equilibrium which predicts that, under fairly general conditions, the distribution of trading volume across exchanges competing for order flow is related to the correlation of the cross-listed asset returns that arise in the respective markets. That is, volume migrates to the exchange in which the cross-listed asset returns have greater correlation with returns of other assets traded on that market. We test this prediction with monthly stock returns and volume data on 275 non-U.S. stocks cross-listed on major U.S. exchanges. We find strong empirical support for the prediction, even after controlling for other firm-specific, issue-specific and country-level factors.

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We are grateful to Alvaro Taboada, Jérôme Taillard, and Peter Wong for research assistance and to Carrie Pan for comments. We also thank Matthew Leighton of the London Stock Exchange and Jean Tobin of the New York Stock Exchange for their help with the data on listing counts. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of

In large U.S. corporations, founding families are the only blockholders whose control rights on average exceed their cash flow rights. We analyze how they achieve this wedge, and at what cost. Indirect ownership through trusts, foundations, limited partnerships, and other corporations is prevalent but rarely creates any wedge (a pyramid). The primary sources of the wedge are dual-class stock, disproportional board representation, and voting agreements. Each control-enhancing mechanism has a different impact on value. Our findings suggest that the potential agency conflict between large shareholders and public shareholders in the United States

We examine the impact of the Sarbanes-Oxley Act (SOX) of 2002 on firms with securities cross-listed on U.S. exchanges in order to (i) test the importance of the legal bonding motive for cross-listing into the U.S. market and (ii) measure the benefits and costs of SOX. The two research questions are interrelated, because a potential benefit of SOX is to increase the extent of legal bonding from a U.S. listing. We exploit SOX being an exogenous change in investor protection for cross-listed firms, which allows us to overcome self-selection issues that have made it difficult for prior research to answer our research questions. Finally, we combine event study evidence from around the time of SOX’s passage with evidence about multiple real changes in behavior between the pre- and post-SOX periods in order to reduce the possibility of incorrectly attributing results to the passage of SOX that could instead be associated with other contemporaneous events. Our event study evidence indicates that SOX’s costs exceed its benefits for cross-listed firms, but that incremental legal bonding does provide a benefit. Our real changes evidence supports the existence of an incremental legal bonding benefit of SOX that substitutes for external monitoring by parties such as institutional blockholders. One cost of

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We investigate the relation between ownership structure and firm performance in Continental Europe, using data from 675 publicly traded corporations in 11 countries. We find that firm valuation and operating performance decrease when the control rights of the largest shareholder exceed its cash-flow ownership. This is consistent with the hypothesis that control power unrelated to cash-flows ownership allows extraction of private benefits and/or entrenchment of less efficient management. We also find that operating performance increases with the largest shareholder’s cashflow ownership, that is consistent with the hypothesis that more cash-flows rights lead to more wealth production and less expropriation of minority shareholders. We don’t find, however, a clear relation between stock market valuation and cash-flows ownership. Families are the type of owners that most recur to control-enhancing devices associated with lower performance. However, even after taking into account that family-controlled corporations exhibit larger separation between control and cash-flow rights, our results