This paper shows how changes in the volatility of the real interest rate at which small open emerging economies borrow have a quantitatively important effect on real variables like output, consumption, investment, and hours worked. To motivate our investigation, we document the strong evidence...

We claim that the stock market encourages business creation, innovation, and growth by allowing the recycling of quot;informed capital.quot; Due to incentive and information problems, new start-ups face high flotation costs. Sustaining a tight relationship with a monitor (bank, venture...

This paper considers why a manager would choose to submit himself to the discipline of bank monitoring. This issue is analyzed within the context of a model where the manager enjoys private benefits, which can be restricted by the monitor, and is optimally compensated by shareholders. Within...

This paper provides a theory of venture capital financing basedon the complementarity between the financing and advising roles of venture capitalists. We examine the interaction between the staging of investment, that characterizes young firms with a high growth potential, and the double-sided...

Banks are highly leveraged institutions, potentially attracted to speculative lending even without deposit insurance. A counterbalancing incentive to lend prudently is the risk of loss of charter value, which depends on future rents. We show in a dynamic model that current concentration does not...

The protection that innovators obtain through intellectual property rights crucially depends on their incentives and ability to litigate infringers. Taking patents as a notable example, we study how the financing of legal costs can alter the incentives to litigate in defense of a patent and,...

By identifying the possibility of imposing a credible threat of liquidation as the key role of informed (bank) finance in a moral hazard context, we characterize the circumstances under which a mixture of informed and uninformed (market) finance is optimal, and explain why bank debt is typically...

This paper considers a model of financial intermediation based on the existence of a moral hazard problem in the choice of investment projects by a heterogeneous population of entrepreneurs. Two alternative ways of funding these projects, called direct (or market) and monitored (or bank)...

The value of bank charters is an important component of bankruptcy costs to bankers and may constitute an incentive for banks to adopt prudent decisions. Charter values had been considered as exogenous by previous researchers. Dynamic programming techniques allow us to obtain simultaneously the...

This paper explores how motivating an incumbent CEO to undertake actions that improve the effectiveness of his management interacts with the firm's policy on CEO replacement. Such policy depends on the presence and the size of severance pay in the CEO's compensation package and on the CEO's...