We model the employee incentive problem jointly with a firm's exit decision. Our model predicts that firms in industries where human capital is important are more likely to go public and use high-powered stock-based compensation. We also show that the higher the management quality, the more...

Implicit guarantees provided by financial intermediaries are important in China. We argue theoretically that project screening by financial intermediaries, accompanied by their implicit guarantees to investors, can be the second-best arrangement. It can also mitigate capital misallocation that...