The frequency with which firms adjust output prices helps explain persistent differences in capital structure across firms. Unconditionally, the most exible-price firms have a 19% higher long-term leverage ratio than the most sticky-price firms, controlling for known determinants of capital...

We analyze the effect of investor level taxes, firm-specific ownership structure and firm-specific payout policy on firms' capital structure choice. Our analysis is based on data for 10,983 firms from 13 Central and Eastern European (CEE) countries over the time period 2002-2012. Our results...

Tax neutrality towards alternative financing instruments for corporate investment is a ubiquitous demand in the political debate. At the same time, the literature is surprisingly silent about the magnitude of possible efficiency costs of a departure from tax neutrality. Against this background,...

In this article we use a stochastic model with one representative firm to study business tax policy under default risk. We will show that, for a given tax rate, the government has an incentive to reduce (increase) financial instability and default costs if its objective function is welfare (tax...

We study an environment where the capital structure of banks and firms are jointly determined in equilibrium, so as to balance the benefits of the provision of liquidity services by bank deposits with the costs of bankruptcy. The risk in the assets held by firms and banks is determined by the...

Global financial regulators are currently reflecting on the nature of the insurance business. Specifically, they are trying to classify insurance into "traditional" and "non-traditional" activities, and to distinguish them from "non-insurance" activities. Subsequently, they will seek to apply...

People often fail to insure against catastrophes, even when insurance is subsidized. Even when insuring homes, many homeowners still underinsure the full value of their assets. Some researchers have suggested using long-term insurance contracts to reduce these insurance gaps. We examine...

Insurance for natural hazards - earthquakes, hurricanes, or pandemics - is rarely comprehensively adopted without intense government intervention, and even then it is often only a minority of properties or businesses that are insured. Efforts to close this insurance gap include the introduction...

We study optimal liquidity management, innovation, and production decisions for a continuum of firms facing financing frictions and the threat of creative destruction. We show that financing constraints lead firms to decrease production but may spur investment in innovation (R&D). We...

After the Lehman default, but also during the euro area sovereign debt crisis, central banks have tended to extend the ability of banks to take recourse to central bank credit operations through changes of the collateral framework (e.g. CGFS, 2008 – in consistence with previous narratives,...