framework. We test the model’s predictions in a laboratory experiment. Both in theory and in the experiment diagnostic … uncertainty decreases the rate of efficient service provision and leads to less trade. In theory, insurance also decreases the …

An entrepreneur chooses a relationship bank or market finance. The advantage of bank finance is that the quality of the … that the bank continues inefficient projects, i.e., zombie lending occurs. In the short run - for a given contract - a drop … in the market interest rate increases zombification. The bank adapts the contract to this drop in the long run, and …

We propose a dynamic bank theory with a delayed loss recognition mechanism and a regulatory capital constraint at its … core. The estimated model matches four facts about banks’ Tobin’s Q that summarize bank leverage dynamics. (1) Book and … market equity values diverge, especially during crises; (2) Tobin’s Q predicts future bank profitability; (3) neither book …