The authors analyze debt renegotiation between a lender and a sovereign borrower. A sovereign, endowed with tradable and nontradable goods technologies and debt outstanding, may have the incentive to shift production to nontradable goods if lenders are able to seize foreign assets generated by...

We examine implications of a society's cultural emphasis on moral sentiments. Entrepreneurs and investors interact in a game that entails both adverse selection and moral hazard; entrepreneurs may attempt to breach their contracts and expropriate investors. An agent is born into a particular...

We examine in a Cournot duopoly model the well-known view that short-term capital market debt can control managerial moral hazard. We show that short-term debt does not provide this discipline because of management's manipulation of the information flow to the market. Shareholders may...

This article examines the interaction between capital structure and advertising competition. Using a sample of firms that raise significant amounts of capital, we find that firms whose financial leverage has decreased as a result of their new funding increase their advertising significantly more...

We characterize a credit market equilibrium in which banks coexist with capital markets and firms obtain funding from both sources. An incentive problem exists between the firm's insiders and outside providers of capital. Banks can provide not only credit but also monitoring services. We show...