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This paper explores the effect of exclusionary "ethical investing" on corporate behavior in a risk averse, equilibrium setting. While arguments exist that ethical investing can inßuence a Þrm's cost of capital, and so affect investment, no equilibrium model has been presented to do so. We show that exclusionary ethical investing leads to "polluting" Þrms being held by fewer investors since "green" investors eschew polluting Þrms' stock. This lack of risk-sharing among "non-green" investors leads to lower stock prices for polluting Þrms, thus raising their cost of capital. If the higher cost of capital more than overcomes a cost of reforming (i.e., a polluting Þrm cleaning up its activities), then polluting Þrms will become socially responsible because of exclusionary ethical investing. A key determinant of the incentive of polluting Þrms to reform is the fraction of funds controlled by green investors. In our model, empirically reasonable parameter estimates indicate that more than 20% green investors are required to induce any polluting Þrms to reform. Existing empirical evidence indicates that at most 10% of funds are invested by green investors.

This paper develops a model of dynamic capital structure choice in the presence of recapitalization costs. The theory provides the optimal dynamic recapitalization policy as a function of firm‐specific characteristics. We find that even small recapitalization costs lead to wide swings in a firm's debt ratio over time. Rather than static leverage measures, we use the observed debt ratio range of a firm as an empirical measure of capital structure relevance. The results of empirical tests relating firms' debt ratio ranges to firm‐specific features strongly support the theoretical model of relevant capital structure choice in a dynamic setting.

In a model of takeovers under asymmetric information, we identify a separating equilibrium in which the value of the bidder firm is revealed by the mix of cash and securities used as payment for the target. The model predicts that the revealed bidder value is monotonically increasing and convex in the fraction of the total offer that consists of cash. We examine the model restrictions using data from Canada, where mixed offers are both relatively frequent and free of the confounding tax-related options characterizing mixed offers in the United States. We find that the average announcement-month bidder abnormal return in mixed offers is large and significant. However, maximum likelihood estimates of parameters in both linear and nonlinear cross-sectional regressions fail to support the model predictions.This research was in part performed while Eckbo was a Fellow of the Batterymarch Financial Management Corporation. We are grateful for the comments and suggestions of

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This paper is an empirical examination of the relation between firm value and two potential actions by entrepreneurs attempting to signal to investors information about otherwise unobservable firm features. The signals investigated are the proportion of equity ownership retained by entrepreneurs and the dividend policy of the firm; both signals are hypothesized to be positively related to firm value. Using a sample of unseasoned new equity issues, the empirical results are consistent with the entrepreneurial ownership retention hypothesis, but the dividend signaling hypothesis is rejected.

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he purpose of this article is to provide insight into the determinants of com-T modity convenience yields. Convenience yield refers to the inverse carrying charges or return implied when spot prices plus storage costs and interest charges exceed the futures prices, holding risk considerations aside. An analytic expression for the convenience yield is derived in a market setting where temporary shocks to demand (or supply) can arise between the time when a futures contract is written and when that contract delivers. In this setting there may be an advantage to a position in inventory in meeting unexpected demand. Such an advantage, if it exists, is reflected in the relationship between equilibrium spot and futures prices, and may partially explain a negative basis (or contango) in seasonal commodities.The intuition that holding the commodity in inventory provides an option not available from a futures contract is well documented. Kaldor (1939) and Working (1948) discuss this intuition and it is restated in the more recent empirical work of Brennan (1986) and Fama and French (1987). These recent articles empirically examine the 'theory of storage'. Brennan (1986) tests several empirical convenience yield models and finds that convenience yield is negatively related to inventory levels. Fama and French (1987) find that seasonalities are significant in explaining agricultural commodities' futures basis. They suggest that this seasonality is due to inventory fluctuations.'The model developed here formalizes the empirical fact that inventory and convenience yield are negatively related, and demonstrates two new factors that influ-The authors would like to thank Rex Thompson, Margaret Slade, Alan Kraus, Josef Zechner, and, especially, Jim Brander for their many useful comments and suggestions. 'A recent article by Bresnahan and Spiller (1986) discusses the role of 'price shocks' on normal backwardation in futures markets. The model does not point out the option feature directly, nor does it draw out testable hypotheses, such as the relations of convenience yield to inventories or marginal production costs. Robert Heinkel is an Associate Professor,