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and seminar participants at Wharton and INSEAD for helpful comments. Ishii acknowledges support from an NSF Graduate Fellowship. ABSTRACT Corporate-governance provisions related to takeover defenses and shareholder rights vary substantially across firms. In this paper, w e use the incidence of 24 different provisions to build a " Governance Index " for(More)
A binomial approximation to a diffusion is defined as " computationally simple " if the number of nodes grows at most linearly in the number of time intervals. It is shown how to construct computationally simple binomial processes that converge weakly to commonly employed diffusions in financial models. The convergence of the sequence of bond and European(More)
In theory, hedging restrictions faced by managers make executive stock options more difficult to value than ordinary options, because they imply that exercise policies of managers depend on their preferences and endowments. Using data on option exercises from 40 firms, this paper shows that a simple extension of the ordinary American option model which(More)
In recent years, the number of downgrades in corporate bond ratings has exceeded the number of upgrades, leading some to conclude that the credit quality of U.S. corporate debt has declined. However, an alternative explanation of this apparent decline in credit quality is that the rating agencies are now using more stringent standards in assigning ratings.(More)
Earlier versions of the paper had Jagannathan and Sun as the authors. We thank Pat Hess and Jack Kareken for helpful discussions, Fannie Mae and University Capital Strategies Group for providing the data. We thank helpful comments. All errors are our own. The views expressed herein are those of the authors and not necessarily those of the National Bureau of(More)
The Azadirachta indica (neem) tree is a source of a wide number of natural products, including the potent biopesticide azadirachtin. In spite of its widespread applications in agriculture and medicine, the molecular aspects of the biosynthesis of neem terpenoids remain largely unexplored. The current report describes the draft genome and four transcriptomes(More)
Through the interaction between financial constraints and R&D, I study two asset-pricing puzzles: mixed evidence on the financial constraints–return relation and the positive R&D-return relation. Unlike capital investment, R&D is more inflexible. A financially constrained R&D-intensive firm is more likely to suspend/discontinue R&D projects. Therefore,(More)
The sample of observed defaults significantly understates the average firm's true expected cost of default due to a sample selection bias. To quantify this selection bias, I use a dynamic capital structure model to estimate firm-specific expected default costs. The average firm expects to lose 45% of firm value in default, a cost higher than existing(More)