We examine the interaction between capital structure and dividend initiation. Reasons often given for the positive abnormal return when firms initiate dividends are the signaling of asymmetric information and the reductions of agency costs. Theory also suggests that these are reasons for choosing debt in the capital structure. This study finds that the effect of initiating dividends is dampened...

We provide several generalizations of Mailath’s (1987) result that in games of asymmetric information with a continuum of types incentive compatibility plus separation implies differentiability of the informed agent’s strategy. The new results extend the theory to classic models in finance such as Leland and Pyle (1977), Glosten (1989), and DeMarzo and Duffie (1999), that were not previously co...

We thank an anonymous referee, an Associate Editor, Gurdip Bakshi, and Jay Huang for their valuable comments and suggestions. We also thank Henry Cao, Hua He, Hayne Leland, Mark Rubinstein, and Matt Spiegel for their advice on an earlier version where a static model was developed. Abstract This paper develops a model in which an optimal capital structure and an optimal debt maturity are jointly...

We develop an expression for the long-term discount rate in an economy in which a representative consumer has access to both a risk-free and a risky production technology. Even when the risk-free sector is very small, and with probability one becomes a negligible fraction of the economy in the long run, interest rates are determined differently than in a single-sector economy. As in a single-ri...

We incorporate structural modelers into the economy they model. Using traditional moment matching, treat policy changes as zero probability (or exogenous) “counterfactuals.” Bias occurs since real-world agents understand are positive events guided by modelers. Downward, upward, or sign bias occurs. is illustrated calibrating Leland model to 2017 tax cut. The identifying assumption, constant par...