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...

We develop a general model of lending in the presence of endogenous borrowing constraints. Borrowing constraints arise because borrowers face limited liability and debt repayment cannot be perfectly enforced. In the model, the dynamics of debt are closely linked with the dynamics of borrowing...

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...

The model we explore is in the spirit of Hopenhayn (1992) and, more directly, an extension of Clementi and Palazzo (2010). Our interest here is to better understand how selection reshapes the dynamics of macro aggregates in a general equilibrium setting with realistic firm-level investment...

of the two shortcomings.

An extension of our basic model introduces sectoral production and endogenises the set of sectors active at any time. This allows us to address cross-country evidence on the higher relative price of investment