Published PapersSubramanian, Krishnamurthy., Viral V Acharya. (2009) "Bankruptcy Codes and Innovation", Review of Financial Studies, 22 (12), 4949-4988Read Abstract >Close >We consider the investment and financing choices of a firm as a function of the bankruptcy code under which it operates. We model investment as a choice between innovative exploration and pursuit of tried-and-tested strategy, and financing as the choice of leverage given the tradeoff between its tax benefits and deadweight costs in bankruptcy. Deadweight costs in bankruptcy arise due to creditors’ preference for liquidating assets or that of debtors in excessively continuing with assets, and their severity depends upon the nature of investment as well as on the relative creditor-friendly or debtor-friendly nature of the bankruptcy code. We show that under mild parametric restrictions, stronger creditor rights result in lower value and lower leverage-based financing of innovative investments relative to triedand- tested strategies.

Published PapersSonti, Ramana., Naveen Khanna, Thomas H Noe. (2008) "Good IPOs draw in bad: Inelastic banking capacity and hot markets", Review of Financial Studies, 21 (5), 1873-1906Read Abstract >Close >We posit that screening IPOs requires specialized labor which is in fixed supply. A sudden increase in demand for IPO financing increases the compensation of IPO screening labor. This results in reduced screening, encouraging sub-marginal firms to enter the IPO market, further fueling the demand for screening labor. The model’s conclusions are consistent with empirical findings of increased underpricing during hot markets, positive correlation between issue volume and underpricing, and with tipping points between hot and cold markets. Finally, the model makes sharp predictions relating the IPO market to fundamental values of firms and to investment banking returns. (JEL G20, G24)

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