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Journal ArticleDOI

How Does Financing Impact Investment? The Role of Debt Covenants

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TLDR
In this paper, the authors identify a specific channel (debt covenants) and the corresponding mechanism (transfer of control rights) through which financing frictions impact corporate investment and show that capital investment declines sharply following a financial covenant violation, when creditors use the threat of accelerating the loan to intervene in management.
Abstract
We identify a specific channel (debt covenants) and the corresponding mechanism (transfer of control rights) through which financing frictions impact corporate investment. Using a regression discontinuity design, we show that capital investment declines sharply following a financial covenant violation, when creditors use the threat of accelerating the loan to intervene in management. Further, the reduction in investment is concentrated in situations where agency and information problems are relatively more severe, highlighting how the state contingent allocation of control rights can help mitigate investment distortions arising from financing frictions.

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Book ChapterDOI

Endogeneity in Empirical Corporate Finance1

TL;DR: In this paper, applied researchers in corporate finance can address endogeneity concerns, including omitted variables, simultaneity, and measurement error, and discuss a number of econometric techniques aimed at addressing endogeneity problems, including instrumental variables, difference-in-differences estimators, regression discontinuity design, matching methods, panel data methods, and higher order moments estimators.
Journal ArticleDOI

The Employment Effects of Credit Market Disruptions: Firm-level Evidence from the 2008–9 Financial Crisis

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Creditor Control Rights and Firm Investment Policy

TL;DR: In this article, the authors examine a large sample of private credit agreements between banks and public firms and find that 32% of the agreements contain an explicit restriction on the firm's capital expenditures.
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Product Market Threats, Payouts, and Financial Flexibility

TL;DR: In this paper, the authors examine how product market threats influence firm payout policy and cash holdings and show that product market fluidity decreases firm propensity to make payouts via dividends or repurchases and increases the cash held by firms, especially for firms with less access to financial markets.
References
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Journal ArticleDOI

Theory of the firm: Managerial behavior, agency costs and ownership structure

TL;DR: In this article, the authors draw on recent progress in the theory of property rights, agency, and finance to develop a theory of ownership structure for the firm, which casts new light on and has implications for a variety of issues in the professional and popular literature.
BookDOI

Density estimation for statistics and data analysis

TL;DR: The Kernel Method for Multivariate Data: Three Important Methods and Density Estimation in Action.
Journal Article

The Cost of Capital, Corporation Finance and the Theory of Investment

TL;DR: In this article, the effect of financial structure on market valuations has been investigated and a theory of investment of the firm under conditions of uncertainty has been developed for the cost-of-capital problem.
Posted Content

Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers

TL;DR: In this paper, the benefits of debt in reducing agency costs of free cash flows, how debt can substitute for dividends, why diversification programs are more likely to generate losses than takeovers or expansion in the same line of business or liquidationmotivated takeovers, and why the factors generating takeover activity in such diverse activities as broadcasting and tobacco are similar to those in oil.
Journal ArticleDOI

Financial ratios, discriminant analysis and the prediction of corporate bankruptcy

TL;DR: In this paper, a set of financial and economic ratios are investigated in a bankruptcy prediction context wherein a multiple discriminant statistical methodology is employed, and the data used in the study are limited to manufacturing corporations, where an initial sample of sixty-six firms is utilized to establish a function which best discriminates between companies in two mutually exclusive groups: bankrupt and nonbankrupt firms.
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