This study examines the role of CEOs’ pensions and deferred compensations by exploring their impacts on pricing and non-pricing contract terms of bank loans. CEO’s inside debt, defined as the sum of defined benefit pensions and deferred compensations, pays fixed amounts at periodic intervals. We find that higher inside debt holdings significantly reduce both loan rate spreads and demands for co...

We review the recent literature on the financing of innovation, inclusive of large companies and new startups. This research strand has been very active over the past five years, generating important new findings, questioning some long-held beliefs, and creating its own puzzles. Our review outlines the growing body of work that documents a role for debt financing related to innovation. We highl...

This study models firm’s financing policy and investment level when manager and outside investors has disagreement. It shows that the firm is more likely to over invest when the level of disagreement is high, and prefers debt financing; while under invests with lower disagreement level and tends to equity financing. Compared with selffinancing, investment at firm level decreases, the over (unde...

n 1958, Nobel Laureates Franco Modigliani and Merton Miller published their famous irrelevance theorems.1 One implication from these theorems is that ers and the U.S. government. Panel A of Figure 1 shows that if the corporate tax rate is 33.3%, the government gets one-third of the pie for an all-equity firm, and stockholders get the remaining two-thirds. But if the firm chooses to finance with...

As an integrated part of a supply contract, trade credit has intrinsic connections with supply chain contracting and inventory management. Using a stylized model that explicitly captures the interaction of firms’ operations decisions and financial risks, this paper attempts to develop a deeper understanding of trade credit from an operational perspective. Revolving around the question of what r...

While the benefits of bank financing are relatively well understood, the costs are not. This paper argues that while informed banks make flexible financial decisions which prevent a firm's projects from going awry, the cost of this credit is that banks have bargaining power over the firm's profits, once projects have begun. The firm's portfolio choice of borrowing source and the choice of prior...

Agency theory posits that debt-like compensation (such as defined-benefit pensions and other deferred compensation) aligns managerial interests more closely with those of debtholders and reduces the agency cost of debt. Consistent with theory, we find that a higher CEO relative leverage, defined as the ratio of the CEO's inside leverage (debt-toequity compensation) to corporate leverage, is ass...

I welcome the opportunity to express my views on Federal debt management. This subject was much discussed in the period immediately following World War II, but it has received only limited attention in recent years, even though important changes have occurred in the management of our Federal debt. It has b~:en subordinated in importance to other important official policy requirements. Many modi...

We consider firm financing when the firm quality is private information of the manager and, given its inherent quality, the project viability depends on the manager exerting unobservable effort. We show that capital structure matters even though managerial contracts are optimally designed. Good firms would like to issue more debt to avoid selling underpricing equity. However, the interaction be...