This paper studies the liquidity of defaultable corporate bonds that are traded in an over- the-counter secondary market with search frictions. Bargaining with dealers determines a bond’s endogenous liquidity, which depends on both the firm fundamental and the time-to-maturity of the...

This paper introduces profitability uncertainty into an infinite-horizon variation of the classic Holmstrom and Milgrom (1987) model, and studies optimal dynamic contracting with endogenous learning. The agent's potential belief manipulation leads to the hidden information problem, which makes...

We study the endogenous information acquisition and withdrawal-redeposit decisions of individual agents when a liquidity event triggers a spreading rumor and therefore exposes a bank to a run. Uncertainty about the bank's liquidity and potential failure motivates agents who hear the rumor to...

We develop a model in which the capital of the intermediary sector plays a critical role in determining asset prices. The model is cast within a dynamic general equilibrium economy, and the role for intermediation is derived endogenously based on optimal contracting considerations. Low...

We study the dynamics of risk premia during crises where financial intermediaries faces constraints on raising equity capital. Risk premia rise when intermediaries' equity capital is scarce. We calibrate the model to match two aspects of crises: the nonlinearity of risk premia during crisis...

been profitable, agency concerns are less severe, and the firm is growing rapidly. To study the effect of serial correlation of productivity shocks on investment and firm dynamics, we extend our model to allow the firm’s output price to be stochastic. We show that, in contrast to static agency...

This paper studies the interaction between default and liquidity for corporate bonds that are traded in an over‐the‐counter secondary market with search frictions. Bargaining with dealers determines a bond's endogenous liquidity, which depends on both the firm fundamental and the...

We study rollover risk and collateral value in a dynamic asset pricing model with endogenous debt financing by extending the framework of Geanakoplos (2009) with a generic binomial tree and time-varying heterogeneous beliefs. Optimistic borrowers face rollover risk if the belief dispersion...

We illustrate the welfare benefit of tax subsidies to corporate debt financing. Two firms engage in a socially wasteful competition for survival in a declining industry. Firms differ on two dimensions: exogenous productivity and endogenously chosen amount of debt financing, resulting in a two...

Firms commonly spread out their debt expirations across time to reduce the liquidity risk generated by large quantities of debt expiring at the same time. By doing so, they introduce a dynamic coordination problem. In deciding whether to rollover his debt, each maturing creditor is concerned...