In the presence of frictions, firms adjust their capital structure infrequently. As a
consequence, in a dynamic economy the leverage of most firms is likely to differ from the …

Intuition suggests that firms with higher cash holdings should be “safer” and have lower
credit spreads. Yet empirically, the correlation between cash and spreads is robustly …

We develop a dynamic tradeoff model to examine the importance of manager–shareholder
conflicts in capital structure choice. In the model, firms face taxation, refinancing costs, and …

We study corporate bond default rates using an extensive new data set spanning the 1866–
2008 period. We find that the corporate bond market has repeatedly suffered clustered …

How much capital should financial intermediaries hold? We propose a general equilibrium
model with a financial sector that makes risky long‐term loans to firms, funded by deposits …

Structural models of credit risk provide poor predictions of bond prices. We show that,
despite this, they provide quite accurate predictions of the sensitivity of corporate bond …

We examine the optimal mixture and priority structure of bank and market debt using a trade-
off model in which banks have the unique ability to renegotiate outside formal bankruptcy …

Structural models of default calibrated to historical default rates, recovery rates, and Sharpe
ratios typically generate Baa–Aaa credit spreads that are significantly below historical …

In contrast to previous studies documenting positive abnormal returns to target
shareholders, we find that hedge fund activism significantly reduces bondholders' wealth …

We embed a structural model of credit risk inside a dynamic continuous-time consumption-
based asset pricing model, which allows us to price equity and corporate debt in a unified …