Abstract: This paper presents and tests a theory in which firms manage capital structure using simple rules, largely ignoring leverage until it approaches critical thresholds. We formalize this behavior in a structural agency model in which incentive conflicts gain priority only outside a safe leverage range. We structurally identify firm-specific thresholds averaging 8.7% and 76% debt-to-assets, with variation linked to model-predicted determinants including free cash flow,  governance and risk. The model achieves predictive accuracy between 68% and 74%. Our findings help reconcile theoretical predictions with real-world financial decision-making.

Abstract: This paper measures the cost of greening the economy from the customer’s perspective using nearly six million US federal procurement contracts from 2007 to 2024. Green contracts are on average 18 to 43 percent more expensive than comparable non-green contracts. Accounting for endogeneity with a Bartik instrument yields an even higher cost premium. The premium increases with public concern about climate change, declines with experience, and rises with regulatory complexity. Green contracts also involve greater administrative effort, including more modifications and delays. Overall, the green transition imposes substantial but partly transitory costs shaped by public sentiment, learning, and regulation.

Abstract: Despite the productivity gains associated with digital technologies, their diffusion across firms remains slow and uneven. A large literature attributes this pattern to skill gaps between firms and workers, yet most existing studies treat these gaps as an exogenous barrier to adoption. This paper shows that skill gaps instead evolve endogenously over the technology diffusion process. We develop a framework in which the gap between firms’ skill requirements and workers’ capabilities changes over the technology life cycle. To test the model, we construct granular measures of firm skill demand and worker skill supply using matched data on job postings and worker résumés. Our analysis yields three key findings. First, we document a systematic U-shaped pattern in skill gaps over the technology life cycle: skill gaps are high when new technologies are first adopted, decline as firms and workers adjust, and rise again as technologies mature into legacy systems. Second, we show that diffusion bottlenecks arise not only from shortfalls in technical expertise but also from shortages of complementary nontechnical capabilities, in particular managerial and coordination skills. Third, we demonstrate that skill gaps help explain the persistence of firms operating legacy systems with limited growth prospects. Together, these findings highlight skill gaps as a dynamic force shaping both the diffusion of new technologies and the persistence of older ones.

Abstract: When estimating the q theory investment equation, it is common to use Tobin's q as a proxy for the unobserved marginal q. A growing literature suggests the possibility of a feedback effect whereby the financial market exerts a direct influence on firm investment decisions. To accommodate this, we extend the standard empirical specification to allow Tobin's q to serve as an error-laden proxy for marginal q while simultaneously directly affecting the firm's investment decision. We estimate the extended specification using two state of the art econometric approaches. First, we bound the parameters using second order moments together with auxiliary restrictions on the signs of the equation coefficients and/or the magnitude of the reliability ratio of Tobin's q. Second, we obtain point estimates using a novel approach that makes use of moments of order higher than two. Our estimates admit a nonzero feedback effect from the financial market and show that the more precise the signal from the financial market is, the more sensitive the management investment decision to it will be.

Abstract: This paper develops and tests a Q-theoretic framework for government investment. We present a model in which a welfare-maximizing government chooses public investment while subsidizing private investment, predicting that government investment increases with government Q but decreases with private-sector Q due to local resource constraints. We construct novel regional measures of government Q from municipal bond prices and aggregate firm-level Qs to measure private-sector Q. Consistent with the model, government investment is positively related to government Q and negatively related to private-sector Q, with stronger effects in regions with larger subsidy programs. The results link corporate investment theory and public finance through market-based valuations, and offer a unified approach to studying economy-wide resource allocation.

Abstract: Studies often employ truncated samples of publicly listed firms due to the lack of data on private firms. This truncation, however, is not random because listing is a choice for many firms, whereas others cannot list due to their characteristics. The ensuing endogenous truncation entails biased estimates. We develop a novel methodology that corrects for the bias. We apply the methodology to study the determinants of investment. In cross-sectional regressions the bias-corrected investment-q sensitivity turns from significantly slightly negative to significantly positive, thereby lending strong support for the q-theory. Our econometric framework is applicable in various other economic contexts.

Abstract: We provide the first structural assessment of the U.S. green transition using the $q$-theory of investment. Distinguishing emissions-free green capital from emissions-intensive brown capital, we develop a transparent identification strategy that infers the replacement cost of the brown capital stock directly from observed emissions, avoiding concerns about greenwashing. Structural estimation yields the market values and adjustment costs of green and brown capital. A pronounced divergence emerges: by 2022, brown capital accounts for 37% of replacement costs but only 22% of market value, indicating that markets value green capital at a premium and discount brown capital. Green investment entails large adjustment costs— 16.7% of output—reflecting both its intensity and the frictions involved in scaling up green capital.

Abstract: Although bond insurance intermediaries are frequently relied upon by local governments for external financing, there is significant debate about the value that bond insurers provide. In this paper, we study U.S. drinking water to estimate the real effects of bond insurance on public infrastructure. We show that exogenous reductions in municipalities' access to bond insurance cause local governments to face higher borrowing costs, reduce external bond issuance, decrease investment in water infrastructure, and experience greater drinking water pollution. The evidence supports the view that well-functioning insurance markets for municipal debt have significant real effects on public infrastructure.

Abstract: Local governments often seek credit ratings from multiple agencies for external financing. Rating shopping and catering, the incentives of the rating agencies, and the career incentives of the analysts issuing the ratings may render the ratings interdependent. This paper estimates the feedback among the credit ratings as well as the impact of the ratings on a bond's yield. To this end, we put forward a simultaneous equations model with three features. First, the model allows the bond's latent fundamental (i.e. credit worthiness) and observed characteristics to directly influence its ratings and yield. Second, the model allows each credit rating to influence the other ratings. Third, the model allows each credit rating to influence a bond's yield. To tackle the simultaneity and endogeneity in the model, we make use of higher order moments. We report simulation results that support our novel econometric framework. We report several important empirical findings. First, ceteris paribus, an agency increases its rating in response to another agency increasing its rating. Second, in full equilibrium, the feedback improves the overall quality of the ratings, measured by the reliability ratio. Third, a ceteris paribus increase in a credit rating decreases the bond yield, corroborating the literature's previous findings. Last, we document a separate substantive effect of the latent fundamental on the yield.

Abstract: Debtor rights vis-a-vis creditor during bankruptcy  can evolve over time due to changes in the nature of the prevailing bankruptcy law and its practice. I empirically study such a time-series trend in debtor rights using comprehensive sample of U.S. firms. To this end, I develop a dynamic model to estimate debtor rights and  examine its implications. Larger debtor rights make  debtors more willing to default, which increases borrowing costs. In response,  firms  lower leverage ex-ante. This channel helps to match  joint distributions of  leverage and default probabilities. Structural estimation reveals a  change over time:  debtor rights increased from 1.2% to 4.4%  around the Bankruptcy Reform Act of 1978, and has gradually decreased back to zero in the subsequent four decades.