We test whether equity overvaluation affects corporate financing decisions using an ex ante misvaluation measure that filters firm scale and growth prospects from market price. We find that equity issuance and total financing by firms increase with equity overvaluation; but only among overvalued stocks. Also consistent with behavioral theories, we find that the sensitivity of equity issuance to...

Using a small open economy framework, we model the composition of capital inflows as the equilibrium outcome of emerging market firms’ financing decisions. We show that debt limits, equity issuing costs, and foreign direct investment search costs generate a financing premium and that the ”cheapest” source of financing depends on the phase of the business cycle and past financing decisions. The ...

We study the influence of a major reform in financial reporting regulation on financing decisions. Across a battery of tests, we document an increase in the issuance of external financing around the new regime. Further, firms make different financing decisions around the new regulation depending on their ex-ante debt capacity, allowing them to adjust their capital structure. Our results are acc...