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Risk-Adjusted Inside Debt, Zhichuan Li, Shannon Lin, Shuna Sun, Alan Tucker
Risk-Adjusted Inside Debt, Zhichuan Li, Shannon Lin, Shuna Sun, Alan Tucker
Business Publications
Compensation theory holds that executive aggression is related to both the level and riskiness of “inside debt” - promises from firms to pay their executives fixed sums of cash in the future, including pensions and deferred compensation. However, previous researchers have only examined the level of inside debt. We provide an inside debt metric that is conceptually superior to previously used metrics, as it incorporates the riskiness of inside debt. For the entire sample, our metric offers modest improvement in fit over past metrics, where the dependent variable is future equity return volatility. Furthermore, the relation between future volatility and …
Revisiting M&M With Taxes: An Alternative Equilibrating Process, Zhichuan Li, Kenneth J. Kopecky, Timothy F. Sugrue, Alan Tucker
Revisiting M&M With Taxes: An Alternative Equilibrating Process, Zhichuan Li, Kenneth J. Kopecky, Timothy F. Sugrue, Alan Tucker
Business Publications
Modigliani and Miller present an equity-quantity shifting equilibrating process to achieve an optimal firm value in the presence of corporate taxes. However, in the era in which they derived their various propositions regarding the relation between a firm’s value and its capital structure, well-capitalized takeover specialists including private equity firms and sovereign funds did not exist, at least by today’s standards. In this paper we develop a simple arbitrage strategy, made viable by the presence of takeover firms, which presents an alternative equilibrating process to achieve the same optimal firm value. This alternative process is markedly different from that of …
Measuring Firm Size In Empirical Corporate Finance, Zhichuan Li, Chongyu Dang, Chen Yang
Measuring Firm Size In Empirical Corporate Finance, Zhichuan Li, Chongyu Dang, Chen Yang
Business Publications
In empirical corporate finance, firm size is commonly used as an important, fundamental firm characteristic. However, no research comprehensively assesses the sensitivity of empirical results in corporate finance to different measures of firm size. This paper fills this hole by providing empirical evidence for a “measurement effect” in the “size effect”. In particular, we examine the influences of employing different proxies (total assets, total sales, and market capitalization) of firm size in 20 prominent areas in empirical corporate finance research. We highlight several empirical implications. First, in most areas of corporate finance the coefficients of firm size measures are robust …