We study term and inflation risk premia in real and nominal bonds, respectively, in an equilibrium model calibrated to United States data. Nominal wage and price rigidities, and an interest-rate monetary policy rule characterize our model economy. Wage rigidities induce positive term and...

Loan commitments represent more than 82 percent of all commercial and industrial loans by domestic banks. This paper develops a valuation model for loan commitments incorporating early exercise, multiple fees, partial exercise and credit risk. The model is analytically tractable and easy to...

How does the banking sector’s financial health affect bank-dependent borrowers’ performance? We use the exogenous shock to U.S. banking system during the Russian crisis of Fall 1998 as a natural experiment to separate the effect of borrower’s demand of credit from the bank’s ability to...

We document empirical support for a key micro-level channel—innovation by young, private firms—through which financial sector deregulation affects economic growth. We find that intrastate banking deregulation, which increased the local market power of banks, decreased the level and risk of...

How does the banking sector’s financial health affect bank-dependent borrowers’ performance? We use the exogenous shock to U.S. banking system during the Russian crisis of Fall 1998 as a natural experiment to separate the effect of borrower’s demand of credit from the bank’s ability to...

Using a large sample of bank loans issued to U.S. firms between 1990 and 2004, we find that lower takeover defenses (as proxied by the lower G-index of Gompers, Ishii, and Metrick 2003) significantly increase the cost of loans for a firm. Firms with lowest takeover defense (democracy) pay a 25%...

We identify a specific channel (debt covenants) and the corresponding mechanism (transfer of control rights) through which financing frictions impact corporate investment. Using a regression discontinuity design, we show that capital investment declines sharply following a financial covenant...

We undertake a broad-based study of the effect of managerial risk-taking incentives on corporate financial policies and show that the risk-taking incentives of chief executive officers (CEOs) and chief financial officers (CFOs) significantly influence their firms' financial policies. In...

In this paper, we focus on modeling and predicting the loss distribution for credit risky assets such as bonds and loans. We model the probability of default and the recovery rate given default based on shared covariates. We develop a new class of default models that explicitly accounts for...