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.

Maturing short-term debt can impose stronger overhang effect than longterm debt does in distorting the firm’s investment and default decisions when the firm refinances its short-term debt in bad times. We derive the optimal maturity structure based on the trade-off between long-term overhang in good times and short-term overhang in bad times. The theory has implications on empirical studies of debt maturity structure, understanding the excessive defaults and underinvestment during recessions, market-based pricing of credit lines, and firm’s cash holdings.

The debt maturity of U.S. industrial firms decreased over the past three decades. This decrease in maturity is driven by the smallest firms for which the median percentage of long-term debt has decreased from 53 % in 1976 to 6 % in 2008. For large firms, however, debt maturity has not declined. Information asymmetry plays an important role in explaining the decrease in debt maturity, while debt and managerial agency problems do not seem to contribute to the decrease. More interesting, we show that firms are using more short-term debt regardless of their characteristics. This unexpected component of debt maturity is more important than changing firm characteristics in explaining the decline in debt maturity and is a result of the new firms issuing public equity in the 1980s and 1990s. Our findings suggest that the shortening of debt maturity has increased the exposure of firms to credit and liquidity shocks. JEL Classification: G30; G32

This paper studies the importance of growth opportunities for debt structure decisions. High growth firms use more unsecured debt to preserve financial flexibility (in the form of untapped secured debt capacity) in connection with future growth opportunities: the growth opportunity channel of debt structure. Our base regression results establish a strong positive relation between growth opportu-nities and unsecured debt. To better identify this relation, we examine the effects of the Biologics Price Competition and Innovation Act (BPCIA) of 2010 on the debt structure of the pharmaceutical industry. We show that pharmaceutical firms responded to the positive BPCIA-induced growth shock by shifting their debt structures towards more unsecured debt. Our large sample tests indicate that although unsecured debt has a direct negative effect on leverage, that effect is strongly mitigated for high growth firms. High growth firms may attract more unsecured funds because their greater growth opportunities are more likely to generate cash flows in excess of secured debt repayments. Our posited growth opportunity channel of debt structure is complementary to, but conceptually distinct

Abstract: The paper studies the effect of social capital on the firms ’ debt capacity and capital structure in China. We measure the social capital of China’s 31 provinces through four indexes: the number of NGOs per capita, the index of trust among peoples, the volunteer blood donation ratio of civics, and the money and material donation of civics. The results show that in those areas with more social capital, the firms are more likely to have higher debt ratio and longer debt maturity, and the firms can get debt financing with less tangible assets. And in those districts, the firms are easier to obtain bank credits and trade credits. The paper has two contributions to the economics literature: first, it confirms the economic value of social capital from a micro view; second, it provides a new perspective to understand the firms ’ capital structure choice.

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Self-similar solutions for active scalar equations in Fourier-Besov-Morrey spaces

Titman and especially Stewart Myers and Charles Kahn for insightful comments. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.