We consider the transitions among intragenerational and alternative intergenerational financing and liquidity risk-sharing mechanisms, in an Overlapping Generations model with endogenous levels of long-lived investments. The existence and characterization of a Self-Sustaining Mechanism, stable...

The critical role played by financial institutions in the recent financial crises has generated renewed interest on the corporate finance of the banking firm and the impact of the banking sector on the real economy. This paper introduces the special issue of the Review of Financial Studies...

This paper studies mergers between competing firms and shows that while such mergers reduce the level of product market competition, they may have an adverse effect on employee incentives to innovate. In industries where value creation depends on innovation and development of new products,...

We analyze the optimality of allowing disclosures of different types of information before equity offerings and of alternative rules for private securities litigation, where courts may penalize unduly optimistic disclosures ex post. In our model, firm insiders, with private information about...

We propose a new theory of systemic risk based on Knightian uncertainty (or "ambiguity"). We show that, due to uncertainty aversion, beliefs on future asset returns are endogenous, and bad news on one asset class induces investors to be more pessimistic about other asset classes as well. This...

We study a multidivisional firm where headquarters are exposed to moral hazard by division managers under uncertainty (or "ambiguity") aversion. We show the aggregation and linearity results of Holmström and Milgrom (1987) hold in an environment with IID ambiguity, as in Chen and Epstein...

We develop a theory of innovation waves, investor sentiment, and merger activity based on Knightian uncertainty. Uncertainty-averse investors are more optimistic on an innovation when they can make contemporaneous investments in multiple uncertain projects. Innovation waves occur when there is a...

We study the classical problem of raising capital under asymmetric information. Following Myers and Majluf (1984), we consider firms endowed with assets in place and riskier growth opportunities. When asymmetric information is concentrated on assets in place (rather than growth opportunities),...

This paper investigates the optimal size and scope of a Venture Capitalist's (VC's) portfolio. We consider a VC who chooses the number of start-ups to invest in his portfolio. In our model, both the VC's and the entrepreneurs' inputs are necessary for the success of the project, making their...

This paper investigates the optimal size and scope of a Venture Capitalist's (VC's) portfolio. We consider a VC who chooses the number of start-ups to invest in his portfolio. In our model, both the VC's and the entrepreneurs' inputs are necessary for the success of the project, making their...