A distortion risk measure used in finance and insurance is defined as the expected value of potential loss under a scenario probability measure. In this paper, the tail distortion risk measure is introduced to assess tail risks of excess losses modeled by the right tails of loss distributions. The asymptotic linear relation between tail distortion and Value-at-Risk is derived for heavy tailed l...

External finance is critical for less established entrepreneurs, so poor investor protection can hinder competition. We model how lobbying for weaker investor protection reduces access to finance and decreases competition in countries where politicians are less accountable to voters. Weaker accountability thus produces a smaller economic elite. As empirical support for this result, in a broad p...

This study examines bank risk by investigating the equity and loan portfolio characteristics of publicly-traded bank holding companies. Unlike the pattern for non-financial firms, equity betas of large banks are two to five times greater than those of small banks. In explaining this, we note that regulation imposes an effective cap on banks’ equity volatility. Because the portfolios of small ba...

Both the equity premium puzzle and the credit spread puzzle address the problem of a reasonable size of agents’ risk aversion. The empirical estimation of risk aversion parameters is impeded by the fact that observed prices depend on risk preferences and probability beliefs. The market for German redemption lottery bonds constitutes a clean environment to estimate risk aversion coefficients fro...

When insiders (management) of a firm have more information than outsiders (investors) then insiders’ desire to sell overpriced securities creates an Adverse Selection problem. To mitigate the problem, the Pecking-Order hypothesis proposes that debt finance should dominates equity finance. But according to the debt rationing literature, debt finance is also prone to the Adverse Selection problem...

We quantify the cost of limited liability rules in a traditional model of investment financing under moral hazard and risk aversion. Under limited liability, we show that external debt and the granting of absolute priority to debtholders are key (but not the unique) ingredients of the optimal financing package. Removing liability limits makes possible a superior contract that punishes the entre...

Organizational boards of directors are one of the most important subgroups within most modern organizations, performing critical advisory, monitoring and resource dependence roles. This paper investigates the crucial question of whether the stock market values ethnic and gender diversity within organizational boards. We find that board diversity is positively associated with market valuation. W...

We develop and test the hypothesis that foreign direct investment promotes corporate governance spillovers in the host country. Using firm-level data on cross-border mergers and acquisitions (M&A) and corporate governance in 22 countries, we find that crossborder M&A activity is associated with subsequent improvements in the governance of the target firms’ local rivals. This positive spillover ...

Operating leases are estimated in the current paper to be approximately thirteen times larger than ®nance leases, on average. In recognition of this, the paper investigates the degree of substitutability between leasing and non-lease debt using a comprehensive measure of leasing, improving on the partial measures used in prior research. Operating lease liabilities are estimated using the Ôconst...

There is debate over the relationship between ownership structure and firm performance. Most existing studies look at established listed companies in developed countries, in which the market mechanism is well developed. Meanwhile, the relationship between ownership structure and firm performance in small and medium enterprises (SMEs) in transition countries has been largely ignored. Drawing on ...