The Contributions of Stewart Myers to the Theory and Practice of Corporate Finance

Franklin Allen, Sudipto Bhattacharya, Raghuram Rajan, and Antoinette Schoar

MIT finance professor Stewart Myers has had a remarkable influence on the theory and practice of corporate finance. This article is a brief survey of his work on “debt overhang” and the financial “pecking order,” capital budgeting, and regulation.

MIT Roundtable on Corporate Risk Management

Panelists: Judy Lewent, Donald Lessard, Andrew Lo, and Lakshmi Shyam-Sunder. Moderated by Robert Merton.

Against the backdrop of financial crisis, the panelists discuss the importance of capital structure and risk management innovation to corporate growth and value, while highlighting the pitfalls and unintended failures.

Risk Management Failures: What Are They and When Do They Happen?

René Stulz

The author challenges the view that current risk management practices are deeply flawed, thus contributing to the financial crisis. He identifies a number of ways that risk management can fail, but also proposes improvements to risk management practice.

Brealey, Myers, and Allen on Capital Budgeting, Capital Structure, and Agency Costs

Richard Brealey, Stewart Myers, and Franklin Allen

Extracts from the authors’ textbook offer suggestions for managers, including how to value a project, which risks to value, the importance of competitive advantage, when to take risks, when to issue equity, and the benefit of managerial co-investment.

Brealey, Myers, and Allen on Real Options

Richard Brealey, Stewart Myers, and Franklin Allen

Real options are valuable sources of flexibility that are either inherent in or can be built into corporate assets. This article reviews real option basics and points out that real-option methods are a complement to, not a substitute for, the DCF method.

Equity Issues and the Disappearing Rights Offer Phenomenon

Espen Eckbo

This article presents a theoretical framework for the choice of seasoned equity issuing method, relying on information asymmetry and adverse selection costs. The model explains when rights offerings are used, and other phenomena in financial markets.

Do "Selective" Hedging Programs Add Value? Evidence From Gold Producers

Tim Adam and Chitru Fernando

The authors question whether corporate derivative use adds value because prices are efficient. They show that derivatives may not be fairly priced for extended periods, but firms do not realize significant cash flow gains by timing the market.

Corporate Leverage and Specialized Investments by Customers and Suppliers

Jayant Kale and Husayn Shahrur

Firms gain a competitive advantage if suppliers and customers invest in relationship-specific assets. The authors show that companies operating in environments requiring such investment operate with lower leverage to reduce the risk of its survival.

Estimating Risk-Adjusted Costs of Financial Distress

Heitor Almeida and Thomas Philippon

This article proposes a new method for valuing expected financial distress costs. Future costs of financial distress are valued by using risk neutral probabilities of distress—not historical default probabilities—and then discounting at the risk-free rate.