"Despite operating under substantial regulatory constraints, we find that commercial banks manage their investments largely consistent with the predictions of portfolio choice models with capital market imperfections. Based on 1990-2002 data for small (assets less than $1 billion) U.S....

Our paper examines the effect of product market competition on firms' incentives to misreport financial information to investors. We examine three specific channels through which product market competition can affect the information environment in an industry and individual firms' incentives to...

Our paper examines the effect of product market competition on firms' incentives to misreport financial information to investors. We examine three specific channels through which product market competition can affect the information environment in an industry and individual firms' incentives to...

We analyze how entrepreneurial firms choose between two funding institutions: banks, who monitor less intensively and face liquidity demands from their own investors, and venture capitalists, who can monitor more intensively but face a higher cost of capital due to the liquidity constraints that...

Theory suggests that banks' private information about borrowers lets them hold up borrowers for higher interest rates. Since hold-up power increases with borrower risk, banks with exploitable information should be able to raise their rates in recessions by more than is justified by borrower risk...

Firms sometimes commit fraud by altering publicly reported information to be more favorable, and investors can monitor firms to obtain more accurate information. We study equilibrium fraud and monitoring decisions. Fraud is most likely to occur in relatively good times, and the link between...

Despite operating under substantial regulatory constraints, we find that commercial banks manage their investments largely consistent with the predictions of portfolio choice models with capital market imperfections. Based on 1990-2002 data for small (assets less than $1 billion) U.S. commercial...

We analyze how optimal contracting between an entrepreneur and a financial institution depends on the cash flow characteristics of the entrepreneur's firm. Because the entrepreneur prefers continuing the firm over liquidating it, and aggressive continuation strategies over conservative...