In this paper we argue that the main empirical findings about firm diversification and performance are actually consistent with a resource-based view of corporate diversification, where firms seek to maximize shareholder value. In our model, diversification is the natural result of firm growth...

reasonable amount of aggregate volatility.

the consequences of this policy for economy-wide quantities such as investment and consumption. Contrary to conventional wisdom we find that changes in tax policy have only a small effect on equilibrium levels of corporate leverage. The intuition lies in the endogenous adjustment of debt prices...

We examine the effects of long-lived nominal debt contracts in a quantitative business cycle model with financial frictions. In our setting, as in reality, firms fund themselves with a mix of nominal defaultable debt and equity securities to issue in every period. Debt is priced fairly taking...

In this paper we investigate the theoretical relation between financial leverage and stock returns in a dynamic world where both the corporate investment and financing decisions are endogenous. We find that the link between leverage and stock returns is more complex than the static textbook...

cross-section, a strategy that is long on durables and short on services earns a sizable risk premium. In the time series, a strategy that is long on durables and short on the market portfolio earns a countercyclical risk premium. We develop an equilibrium asset-pricing model that explains these...

This paper suggests that skill accumulation through past work experience, or ``learning-by-doing'' (LBD), can provide an important propagation mechanism in a dynamic stochastic general equilibrium model, as the current labor supply affects future productivity. Our econometric analysis uses a...

This paper investigates the role of financial market frictions on investment and the price of financial asset. We show that standard models with financial market imperfections can be summarized with a simple financing cost function, equal to the product of the financing premium and the amount of...