Malcolm P. Baker

We study green bonds, which are bonds whose proceeds are used for environmentally sensitive purposes. After an overview of the U.S. corporate and municipal green bonds markets, we study pricing and ownership patterns using a simple framework that incorporates assets with nonpecuniary utility. As predicted, we find that green municipal bonds are issued at a premium to otherwise similar ordinary bonds. We also confirm that green bonds, particularly small or essentially riskless ones, are more closely held than ordinary bonds. These pricing and ownership effects are strongest for bonds that are externally certified as green.

We outline a dividend signaling model that features investors who are behaviorally averse to dividend cuts. Managers with strong unobservable cash earnings separate by paying high dividends but retain enough to be likely not to fall short next period. The model is consistent with a Lintner partial adjustment model; modal dividend changes of zero; stronger market reactions to dividend cuts than increases; comparatively infrequent and irregular repurchases; and a mechanism that does not depend on public destruction of value, which managers reject in surveys. New tests involve stronger reactions to changes from longer-maintained dividend levels and reference point currencies of ADR dividends.

Government bonds comove more strongly with bond-like stocks: stocks of large, mature, low-volatility, profitable, dividend-paying firms that are neither high growth nor distressed. Variables derived from the yield curve that are already known to predict returns on bonds also predict returns on bond-like stocks; investor sentiment, a predictor of the cross section of stock returns, also predicts excess bond returns. These relationships remain in place even when bonds and stocks become "decoupled" at the index level. They are driven by a combination of effects including correlations between real cash flows on bonds and bond-like stocks, correlations between their risk-based return premia, and periodic flights to quality.

In this chapter, we survey the theory and evidence of behavioral corporate finance, which generally takes one of two approaches. The market timing and catering approach views managerial financing and investment decisions as rational managerial responses to securities mispricing. The managerial biases approach studies the direct effects of managers' biases and nonstandard preferences on their decisions. We review relevant psychology, economic theory and predictions, empirical challenges, empirical evidence, new directions such as behavioral signaling, and open questions.

Prior stock price peaks of targets affect several aspects of merger and acquisition activity. Offer prices are biased toward recent peak prices although they are economically unremarkable. An offer's probability of acceptance jumps discontinuously when it exceeds a peak price. Conversely, bidder shareholders react more negatively as the offer price is influenced upward toward a peak. Merger waves occur when high returns on the market and likely targets make it easier for bidders to offer a peak price. Parties thus appear to use recent peaks as reference points or anchors to simplify the complex tasks of valuation and negotiation.

This is a CORE course for students pursuing careers in finance. Thus, students interested in pursuing careers in mutual funds, hedge funds, pension funds, endowments, wealth management, financial consulting, marketing and client service, sales and trading, investment banking, private equity, venture capital, and corporate finance should enroll in the course. More broadly, many students have found that a thorough understanding of capital markets and the business of investment management is valuable in a wider set of careers outside of finance and in managing their personal wealth.

There are two CORE courses in capital markets in the elective curriculum: Investment Management and Investment Strategies. The focus of Investment Management is on the money management industry. The course takes the perspective of both the managers of asset management firms and institutional investors like endowments and sovereign wealth funds. From these viewpoints, students consider issues of growth and profitability, product design and innovation, client engagement, organizational design, performance evaluation, asset allocation, and portfolio risk management. The focus of Investment Strategies is on financial markets, principally equity markets, taking the perspective of a portfolio manager and considering the efficacy of value investing, growth investing, arbitrage, macroeconomic investing, tactical asset allocation, and other active investment strategies.

Finance for Senior Executives provides the frameworks to strategically use financial resources and position your company for future success. By examining corporate finance from both internal and external perspectives, this HBS Executive Education leadership development offering enables you to establish the best financial systems for management and control—and utilize capital markets for the most profitable outcomes. You will leave with the strategies and tools to improve your company's bottom line and to take on new responsibilities over time.

Specifically, you will be better able to:

§  Position your company to compete in today's volatile global marketplace and to seize opportunities when the market expands

§  Establish successful and realistic performance plans, incentives, and financial controls at the corporate and divisional levels

§  Employ proven forecasting methods that enable you to predict and monitor outcomes with greater confidence

§  Recognize and address biases within financial systems and structures

§  Master the workings of capital structure and capital markets to ensure better strategic decision making in an economic downturn

§  Balance profit, growth, and control in highly dynamic environments

§  Understand and implement optimal restructuring strategies

§  Work more effectively with a diverse range of colleagues in financial roles inside and outside your organization