NBER Publications by Richard S. Ruback

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Working Papers and Chapters

November 2004Behavioral Corporate Finance: A Survey
with Malcolm Baker, Jeffrey Wurgler: w10863
Research in behavioral corporate finance takes two distinct approaches. The first emphasizes that investors are less than fully rational. It views managerial financing and investment decisions as rational responses to securities market mispricing. The second approach emphasizes that managers are less than fully rational. It studies the effect of nonstandard preferences and judgmental biases on managerial decisions. This survey reviews the theory, empirical challenges, and current evidence pertaining to each approach. Overall, the behavioral approaches help to explain a number of important financing and investment patterns. The survey closes with a list of open questions.

Published: Eckbo, Espen (ed.) Handbook in Corporate Finance: Empirical Corporate Finance. North Holland: Elsevier, 2007.

April 1994The Valuation of Cash Flow Forecasts: An Empirical Analysis
with Steven N. Kaplan: w4724
This paper compares the market value of highly leveraged transactions (HLTs) to the discounted value of their corresponding cash flow forecasts. These forecasts are provided by management to investors and shareholders in 51 HLTs completed between 1983 and 1989. Our estimates of discounted cash flows are within 10%, on average, of the market values of the completed transactions. Our estimates perform at least as well as valuation methods using comparable companies and transactions. We also invert our analysis and estimate the risk premium implied by transaction values and forecast cash flows, and the relation of the implied risk premium to firm-level betas, industry-level betas, firm size, and firm book-to-market ratios.

Published: Journal of Finance, volume 50, Sept 1995, pp1059-1094. citation courtesy of

April 1987Discounting Rules for Risky Assets
with Stewart C. Myers: w2219
This paper develops a rule for calculating a discount rate to value risky projects. The rule assumes that asset risk can be measured by a single index (e.g., beta), but makes no other assumptions about specific forms of the asset pricing model. It treats all projects as combinations of two assets: Treasury bills and the market portfolio. We know how to value each of these assets under any theory of debt and taxes and under any assumption about the slope and intercept of the market line for equity securities. Our discount rate is a weighted average of the after-tax return on riskless debt and the expected return on the portfolio, where the weight on the market portfolio is beta.

Published: Discounting Rules for Risky Assets, November 1992 (with R. Ruback)

1987An Overview of Takeover Defenses
in Mergers and Acquisitions, Alan J. Auerbach, editor

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