No abstract

Do firms' governance provisions affect their terms of obtaining external financing? We hypothesize that it is more difficult for firms with more restrictions on shareholder rights to raise external equity, and that since analyst coverage is an important part of underwriting services, underwriters would use analyst recommendations to promote issuing firms with weaker shareholder rights more strongly and charge them higher underwriting fees. Consistent with our hypothesis, we find that analyst recommendations on issuing firms with weak shareholder rights increase more than those with strong shareholder rights prior to SEOs, and that underwriting spreads are positively related to issuing firms' shareholder rights as proxied by the G-index. Furthermore, the effect of shareholder rights on underwriting fees is largely contained in the six provisions in the E-index.

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We examine the sector‐specific distributive effect of war in the US economy. We argue that war generates sector‐specific distributive effects via demand‐side and supply‐side mechanisms. We also claim that war's distributive effects materialize over time. Our empirical analysis utilizes a panel data set with 22,354 U.S. firms for the period from 1960 to 2007. It probes the impact of the U.S. Government's war making on firm performance in the U.S. arms and non‐arms (hybrid and civilian) sectors in both the short and long runs. Our analysis shows that war does not always affect U.S. non‐arms sectors adversely. Indeed, war exercises a positive total long‐run effect for these sectors. It also finds that the supposedly positive distributive effect of war for U.S. arms sectors proves weaker than analysts generally assume. Finally, it demonstrates that war‐induced demand and supply shocks can explain these results. Overall, our research sheds light on a relatively understudied aspect of war and advances the general understanding of the political microeconomy of war making.

Given different preference of political parties on macroeconomic issues, elections create a policy uncertainty. We hypothesize that election uncertainty increases cost of equity due to lower investor demand on equity issuances. Using U.S. elections from 1960 to 2010, we show that market leverage and probability to issue leverage are highest in the election year. On the other hand, when the election uncertainty resolves, firms experience a sharp decline in their leverage ratios. This finding suggests that firms rebalance and move their leverage ratios to target leverage. Our results are robust to definition of market and book leverage, S&P credit rating, marginal tax rates, and sub-period analysis.