We investigate the effect of growth opportunities in a firm's investment opportunity set on its joint choice of leverage, debt maturity, and covenants. Using a database that contains detailed debt covenant information, we provide large-sample evidence of the incidence of covenants in public debt and construct firm-level indices of bondholder covenant protection. We find that covenant protection is increasing in growth opportunities, debt maturity, and leverage. We also document that the negative relation between leverage and growth opportunities is significantly attenuated by covenant protection, suggesting that covenants can mitigate the agency costs of debt for high growth firms. Copyright 2007 by The American Finance Association.

We explore the history of mergers and acquisitions made by individual CEOs. Our study has three main findings: (1) CEOs' first deals exhibit zero announcement effects while their subsequent deals exhibit negative announcement effects; (2) while acquisition likelihood increases in the performance associated with previous acquisitions, previous positive performance does not curb the negative wealth effects associated with subsequent deals; and (3) CEOs' net purchase of stock is greater preceding subsequent deals than it is for first deals. We interpret these results as consistent with self-attribution bias leading to overconfidence. We also find evidence that the market anticipates future deals based on the CEO's acquisition history and impounds such anticipation into stock prices.overconfidence, hubris, self-attribution, frequent acquirer, mergers and acquisitions, insider trading

Investors and managers evaluate potential investments in terms of risk and return. Research has focused on linking marketing activities and resource deployments with returns but has largely neglected marketing's role in determining risk. Yet the theoretical literature asserts that investments in market-based assets, such as brands, should lead to reductions in firm risk. Adopting risk measures that are well established in the finance literature, the authors use credit ratings to capture debt-holder risk and the standard deviation of stock returns to measure equityholder risk, which they then decompose into systematic and unsystematic equity risk. The authors examine the impact of consumer-based brand equity (CBBE) on firm risk using data covering 252 firms from EquiTrend, COMPUSTAT, and the Center for Research in Security Prices over the 2000-2006 period. They find that a firm's CBBE is associated with firm risk and explains variance in the risk measures beyond that explained by existing finance models (i.e., it has "risk relevance"). They also find that CBBE has a stronger role in predicting firm-specific unsystematic risk than systematic risk but that it also has a particularly strong role in protecting equity holders from downside systematic risk. The results have clear economic significance and suggest that managers should make brand management part of the firm's risk management strategy and protect or even increase CBBE investments during periods of economic uncertainty.

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Previous research demonstrates that a firm's common stock price tends to fall when it issues new public securities. By contrast, commercial bank loans elicit significantly positive borrower returns. This article investigates whether the lender's identity influences the market's reaction to a loan announcement. Although we find no significant difference between the market's response to bank and nonbank loans, we do find that lenders with a higher credit rating are associated with larger abnormal borrower returns. This evidence complements earlier findings that an auditor's or investment banker's perceived “quality” signals valuable information about firm value to uninformed market investors.