There is widespread evidence supporting the conjecture that borrowing constraints have important implications for firm growth and survival. In this paper we model a multi-period borrowing/lending relationship with asymmetric information. We show that borrowing constraints emerge as a feature of...

Recent empirical evidence has suggested a positive association between various measures of investor protection and financial market development, and between financial market development and economic growth. We introduce investor protection in a simple extension of the two-period overlapping...

A large and increasing fraction of the value of executives' compensation is accounted for by security grants. It is often argued that the optimal compensation contracts characterized in the theoretical literature can be implemented by means of stock or option grants. However, in most cases the...

The empirical literature has pointed out several stylized facts about Executive Compensation Schemes. In particular, with respect to the sensitivity of compensation to shareholder wealth, three findings stand out. First, the short-run response of compensation to performance is lower than the one...

Recent years have witnessed a rapid accumulation of empirical evidence documenting firm dynamics around the IPO date. A particularly striking finding is that operating performance, as measured by Returns on Assets for example, peaks in the fiscal year preceding the offering, worsens on impact at...

In this paper we use data from the U.S. Census Bureau’s Longitudinal Research Database in order to assess the extent of the cross-sectoral variation in firm-level idiosyncratic risk and shed light on its determinants. We find that firms producing investment goods exhibit greater volatility in...

A large and increasing fraction of the value of executives' compensation is accounted for by security grants. However, in most models of executive compensation, the optimal allocation can be implemented through a sequence of state-contingent cash payments. Security awards are redundant. In this...

Since the seminal contribution of Berk, Green, and Naik (Journal of Finance, 1999), we have witnessed a growing interest in rationalizing the observed cross-sectional relation between investment and stock returns. Unfortunately, however, the extant literature falls short of ensuring that the...

We amend Hopenhayn's model of equilibrium industry dynamics by explicitly modeling the firm's investment choice and by introducing aggregate fluctuations. Our main goal is to study the model's implications for the cyclical behavior of entry, exit, and the cross--section of operating firms. We...

contract. We focus our attention on testable implications: (i) the relationship between compensation and firm size, (ii) the relative importance of current and deferred compensation, (iii) the sensitivity of compensation to innovations in shareholder wealth, and (iv) the relationship between...