The Dynamics of Mergers and Acquisitions

This paper presents a dynamic model of takeovers based on the stock market valuations of merging firms. The model incorporates competition and imperfect information and determines the terms and timing of takeovers by solving option exercise games between bidding and target shareholders. The implications of the model for returns to stockholders are consistent with the available evidence. Notably, the model predicts that (1) returns to target shareholders should be larger than returns to bidding shareholders, and (2) returns to bidding share-holders can be negative if there is competition for the acquisition of the target. In addition, the model generates new predictions relating these returns to the drift, volatility and correlation coefficient of the bidder and the target stock returns and to the dispersion of beliefs regarding the benefits of the takeover.takeovers; real options; competition; learning.

Capital Structure, Credit Risk, and Macroeconomic Conditions

This paper develops a framework for analyzing the impact of macroeceomic conditions on credit risk and dynamic capital structure choice. We begin by observing that when cash flows depend on current economic conditions, there will be a benefit for firms to adapt their default and financing policies to the position of the economy in the business cycle phase. We then demonstrate that this simple observation has a wide range of implications for corporations. Notably, we show that our model can replicate observed debt levels and the countercyclicality of leverage ratios. We also demonstrate that it can reproduce the observed term structure of credit spreads and generate strictly positive credit spreads for very short maturities. Finally, we characterize the impact of macroeconomic conditions on the pace and size of capital structure changes, and debt capacity. A number of new predictions follow.Dynamic capital structure; Credit spreads; Macroeconomic conditions

Capital Structure, Credit Risk, and Macroeconomic Conditions

This paper develops a framework for analyzing the impact of macroeconomic conditions on credit risk and dynamic capital structure choice. We begin by observing that when cash flows depend on current economic conditions, there will be a benefit for firms to adapt their default and financing policies to the position of the economy in the business cycle phase. We then demonstrate that this simple observation has a wide range of empirical implications for corporations. Notably, we show that our model can replicate observed debt levels and the countercyclicality of leverage ratios. We also demonstrate that it can reproduce the observed term structure of credit spreads and generate strictly positive credit spreads for debt contracts with very short maturities. Finally, we characterize the impact of macroeconomic conditions on the pace and size of capital structure changes, and debt capacity.Dynamic capital structure, Credit spreads, Macroeconomic conditions

Capital Structure, Credit Risk, and Macroeconomic Conditions

This paper develops a framework for analyzing the impact of macroeconomic conditions on credit risk and dynamic capital structure choice. We begin by observing that when cash flows depend on current economic conditions, there will be a benefit for firms to adapt their default and financing policies to the position of the economy in the business cycle phase. We then demonstrate that this simple observation has a wide range of empirical implications for corporations. Notably, we show that our model can replicate observed debt levels and the countercyclicality of leverage ratios. We also demonstrate that it can reproduce the observed term structure of credit spreads and generate strictly positive credit spreads for debt contracts with very short maturities. Finally, we characterize the impact of macroeconomic conditions on the pace and size of capital structure changes, and debt capacity.Dynamic capital structure; Credit spreads; Macroeconomic conditions

Growth Options in General Equilibrium: Some Asset Pricing Implications

We develop a general equilibrium model of a production economy which has a risky production technology as well as a growth option to expand the scale of the productive sector of the economy. We show that when confronted with growth options, the representative consumer may sharply alter consumption rates to improve the likelihood of investment. This reduction in consumption is accompanied by an erosion of the option value of waiting to invest, leading to investment near the zero NPV threshold. It also has important consequences for the evolution of risk aversion, asset prices and equilibrium interest rates which we characterize in this paper. One interesting prediction of the model is that we get time varying risk aversion and equity returns by virtue of the presence of growth option. We also find that the moneyness of the growth option is the key factor which determines the extent to which the book to market ratios will influence the conditional moments of equity returns.Time varying MRS; Growth Options; General Equilibrium

On the debt Capacityof growth Options

If debt capacity is defined as the incremental debt that is optimally associated with an additional asset, then the debt capacity of growth options is negative. Underinvestment costs of debt increase and free cash flow benefits of debt fall with additional growth options. Thus, if firm value increases with additional growth options, then leverage not only declines, but the firm’s optimal total debt level declines as well. This result implies a negative relation between book leverage and growth options and provides a new economic interpretation of book leverage regressions.Growth options; Book leverage

The environment: a source of capabilities for older adults?

International audienceThis article presents an exploratory study on older adults' mobility. The study was based on both observations in a complex built environment (a university hospital), and on an online questionnaire distributed to people aged 50 and more. The main objective of the two studies presented in this paper was to determine the difficulties encountered by older adults when moving outdoors and indoors. A secondary objective was to investigate the resources used in order to cope with the difficulties. The results shows that the main mobility obstacles for older adults are related, firstly, to the salience of landmarks and the spatial organization of the environment and, secondly, to the age-related decline in physical, sensory and physiological abilities. Our studies show that the main resources to overcome these obstacles are landmarks and personnel support in the hospital and Internet, GPS, plans and maps outdoors

Irreversible Investment with Regime Shifts

Under the real options approach to investment under uncertainty, agents formulate optimal policies under the assumption that firms’ growth prospects do not vary over time. This paper proposes and solves a model of investment decisions in which the growth rate and volatility of the decision variable shift between different states at random times. A value-maximizing investment policy is derived such that in each regime the firm’s investment policy is optimal and recognizes the possiblity of a regime shift. Under this policy, investment is intermittent and increases with marginal q. Moreover, the rate of investment typically is very small but exhibits some spurts of growth. Implications for marginal q and the user cost of capital are also examined.Investment; Capacity choice; Regime shifts

Asset liquidity, capital structure, and secured debt

This paper investigates the impact of asset liquidity on the valuation of corporate securities and the firm's financing decisions. I show that asset liquidity increases debt capacity only when bond covenants restrict the disposition of assets. By contrast, I demonstrate that, with unsecured debt, greater liquidity increases credit spreads on corporate debt and reduces optimal leverage. The model also determines the extent to which pledging assets increases firm value and relates the optimal size of the pledge to firm and industry characteristics. Finally, I show that asset liquidity and security provisions may help explain leverage ratios and credit spreads observed in practice

Debt Enforcement, Investment, and Risk Taking Across Countries

We argue that the prospect of an imperfect enforcement of debt contracts in default reduces shareholder-debtholder conflicts and induces leveraged firms to invest more and take on less risk as they approach financial distress. To test these predictions, we use a large panel of firms in 41 countries with heterogeneous debt enforcement characteristics. Consistent with our model, we find that the relation between debt enforcement and firms’ investment and risk depends on the firm-specific probability of default. A differences-in-differences analysis of firms’ investment and risk taking in response to bankruptcy reforms that make debt more renegotiable confirms the cross-country evidence