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AbstractWe examine the effect of agency conflicts on debt financing and show that managerial ownership and its interaction with takeover defenses affect these decisions. We find that (1) the relation between leverage and takeover defenses becomes insignificant when we control for the interaction of these defenses with managerial ownership, and (2) firms with large managerial ownership operate at high debt levels unless they have a large number of takeover defenses. Therefore, a two‐dimensional aspect of governance that includes the interaction between managerial ownership and takeover defenses is useful in understanding the effect of agency conflicts on firms' debt financing decisions.

AbstractWe propose a new model to estimate the term structure of interest rates using observed on‐the‐run Treasury yields. The new model is an improvement over models that require a priori knowledge of the shape of the yield curve to estimate the term structure. The general form of the model is an exponential function that depends on the estimation of four parameters fit by nonlinear least squares and has straightforward interpretations. In comparing the proposed model with current yield‐curve‐smoothing models, we find that, for the data used, the proposed model does best overall in terms of pricing accuracy both in sample and out of sample.JEL classification: E43, G12

Although a large literature in accounting examines the role that audit committees play in the oversight of the financial reporting process, little is known about how the interactions between the audit com-mittee as a group and top management affects financial reporting choices. In this study, we investigate the effect of an important type of group dynamic, namely the political dissimilarity between the audit committee and the CFO, on financial reporting quality. Using a large sample of hand-collected political donation data, we find that audit committeeCFO political dissimilarity is associated with lower like-lihoods of financial restatements, lower likelihood of material weaknesses, and lower audit fees. Im-portantly, these positive financial reporting quality outcomes exist even after controlling for other features of the audit committeeCFO relationship, namely gender, age, and relative power, local ide-ological heterogeneity, and CEO ideological dissimilarity with both the audit committee and the CFO. Further testing shows that the effects of CFOpolitical dissimilarity on financial reporting quality is salient in settings within the purview of the audit committee where decisions are inherently complex, can be subjective, and are more likely to be associated with disagreements with managementgoodwill impairments, tax avoidance, and pro-forma reporting. Overall, our results suggest that heterogeneity in political beliefs between audit committee members and the CFO is valuable. ; Submitted version

AbstractUsing a manually collected U.S. index mutual fund sample, we find that funds with sponsor‐affiliated lending agents have lower annual returns on lent securities and that securities lending returns are significantly higher when funds administer their own lending programs. We also document that multiple board of director appointments, more director fund ownership, higher board independence, and lower excess director compensation are associated with higher lending returns. Overall, the evidence has implications for mutual fund boards as they consider lending proposals and for future regulatory actions.