We consider a principal-agent model in which the agent needs to raise capital from the principal to finance a project. Our model is based on DeMarzo and Fishman (2003), except that the agent's cash flows are given by a Brownian motion with drift in continuous time. The difficulty in writing an...

We analyze equilibrium leverage dynamics in a dynamic tradeoff model when the firm is unable to commit to a leverage policy ex ante. We develop a methodology to characterize equilibrium equity and debt prices in a general jump-diffusion framework, and apply our approach to the standard Leland...

Prior literature demonstrates that an increased trading activity of a fi rm's stock is associated with abnormal future stock returns (the high-volume return premium) and interprets this phenomenon as evidence that increased visibility generates reductions in cost of capital. Motivated by this...

In our model, leverage is dependent on the full history of the firm's earnings. Despite the absence of transactions costs, an increase in profitability causes leverage to decline in the short-run, but the rate of new debt issuance endogenously increases so that leverage ultimately mean-reverts....

We consider a principal-agent model in which the agent needs to raise capital from the principal to finance a project. Our model is based on DeMarzo and Fishman (2003), except that the agent's cash flows are given by a Brownian motion with drift in continuous time. The difficulty in writing an...