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Chicago Booth School of Business
Paper Title TBD
Abstract TBD
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Mihaylo College of Business and Economics, CSU Fullerton
Paper Title TBD
Abstract TBD
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Amiyatosh Purnanandam
University of Michigan
Paper Title TBD
Abstract TBD
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Neng Wang
Columbia University
Paper Title TBD
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Leverage Dynamics under Costly Equity Issuance
Abstract:
We propose a theory of leverage dynamics based on a parsimonious model with a cashflow process subject to diffusion and jump shocks, external financing through short-term debt and equity, and crucially equity issuance costs. We show that both plausible average leverage outcomes and observed leverage dynamics can be explained by firms’ efforts to avoid incurring equity issuance costs. Paradoxically, it is the high cost of equity issuance that causes the firm to keep leverage low, in contrast to the predictions of Modigliani-Miller and Leland tradeoff and Myers’ pecking-order theories. The marginal source of external financing on an on-going basis is debt. Leverage can only increase as a result of losses. When the firm is at its target leverage any additional profit is paid out, and when leverage reaches the firm’s endogenous debt capacity any additional loss either triggers a costly recapitalization or a default. When leverage is close to the firm’s target, it tends to revert to target, but beyond a certain point the expected change in leverage is positive and the firm enters a leverage death spiral. |
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Tim James McQuade
University of Colorado - Boulder
Paper Title TBD
Abstract TBD
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City University of New York
Paper Title TBD
Abstract TBD
Yongqiang Chu
University of North Carolina at Charlotte
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The Color of Hedge Fund Activism
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Abstract:
| Banks targeted by hedge fund activism reduce racial disparities in mortgage approval rates and interest rates. However, racial differences in mortgage foreclosure rates do not change, suggesting that the effect is not driven by changes in risk or risk preferences. We find that target banks experience higher turnovers of mortgage officers and open new bank branches to address the lending discrimination problem. |
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Federal Reserve Bank of New York
Paper Title TBD
Abstract TBD
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Dan McMillan
University of Illinois
Paper Title TBD
Abstract TBD
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