We survey 392 CFOs about the cost of capital, capital budgeting, and capital structure. Large firms rely heavily on present value techniques and the capital asset pricing model, while small firms are relatively likely to use the payback criterion. We find that a surprising number of firms use their firm risk rather than project risk in evaluating new investments. Firms are concerned about maintaining financial flexibility and a good credit rating when issuing debt, and earnings per share dilution and recent stock price appreciation when issuing equity. We find some support for the pecking-order and trade-off capital structure hypotheses but little evidence that executives are concerned about asset substitution, asymmetric information, transactions costs, free cash flows, or personal taxes. Key words: capital structure, cost of capital, cost of equity, capital budgeting, discount rates, project valuation, survey. 1 We thank Franklin Allen for his detailed comments on the survey instrument and the overall project. We

The interests and incentives of managers and shareholders conflict over such issues as the optimal size of the firm and the payment of cash to shareholders. These conflicts are especially severe in firms with large free cash flows—more cash than profitable investment opportunities. The theory developed here explains 1) the benefits of debt in reducing agency costs of free cash flows, 2) how debt can substitute for dividends, 3) why “diversification ” programs are more likely to generate losses than takeovers or expansion in the same line of business or liquidation-motivated takeovers, 4) why the factors generating takeover activity in such diverse activities as broadcasting and tobacco are similar to those in oil, and 5) why bidders and some targets tend to perform abnormally well prior to takeover.

-invest decision is developed under these assumptions. The mode1 shows that firms may refuse to issue stock, and therefore may pass up valuable investment opportunities. The model suggests explanations for several aspects of corporate financing behavior, including the tendency to rely on internal sources of funds

This dissertation includes two chapters on international joint ventures and corporate finance. Chapter 1 is the first to relate the hubris hypothesis (Roll, 1986) to international joint ventures. I investigate shareholder wealth effects of US-China joint venture announcements from 1985 to 2007

accounting. Well, I bring good news and bad news: The good news is that there is in fact very little accounting in Corporate Finance; the bad news is that here I come … to hammer you with finance. The following are the type of questions we will raise, and hopefully answer, in this course. Why is it that 30

uninformed, and passive external

Probabilistic failure prediction models are commonly estimated from non-random samples of business companies. The proportion of failure companies in such samples is often much larger than the proportion of failure companies in most real-world decision contexts. This so-called “choice-based sample bias ” implies that calculated failure probabilities will be (more or less) biased. The purpose of the paper is to analyse this bias and its consequences for standard applications of probabilistic failure prediction models (for example probit/logit analysis) and in particular to investigate whether the bias can be eliminated without having to re-estimate the underlying statistical model. It is shown that there is a straightforward linkage between

The Federal Reserve Bulletin is issued monthly under the direction of the staff publications committee. This committee is responsible for opinions expressed except in official statements and signed articles. It is assisted by the Economic Editing Section headed by Mendelle T. Berenson, the

This paper studies thirty-one highly leveraged transactions (HLTs) of the 1980s that subsequently became financially distressed. At the time of distress, all sample firms have operating margins that are positive and in the majority of cases greater than the median for the industry. Therefore, we consider these firms financially distressed, not economically distressed. The net effect of the HLT and financial distress is a slight increase in value-- from pre-transaction to distress resolution, the sample firms experience a marginally positive change in (market- or industryadjusted) value. This finding strongly suggests that, overall, the HLTs of the late 1980s succeeded in creating value. We also present quantitative and qualitative estimates of the (direct and indirect) costs of financial distress and their determinants. Our preferred estimates of the costs of financial

“The academic approach helps analysts understand the system within which they are interacting. Understanding the why, where, and how is better than trying to follow a black box solution. The worst thing a practitioner can ask is: ‘Give me a rule of thumb I can follow without thinking. ’ ” David Nawrocki. 1.