We ask whether the quality of internal information matters for investment decisions. We predict that investment is more sensitive to internal profit signals and less sensitive to external price signals when managers have higher quality internal information. Consistent with recent theoretical and...

We study investment options in a dynamic agency model. Moral hazard creates an option to wait and agency conflicts affect the timing of investment. The model sheds light, theoretically and quantitatively, on the evolution of firms' dynamics, in particular the decline of the failure rate and the...

This paper focuses on the importance of equity markets in facilitating the exit of entrepreneurs investing in technology. Entrepreneurs' willingness to invest and aggregate output is affected in two opposite ways. First, uncertainty about equity price or lack of market liquidity discourages...

We show that measurable managerial characteristics have significant explanatory power for corporate financing decisions beyond traditional capital-structure determinants. First, managers who believe that their firm is undervalued view external financing as overpriced, especially equity. Such...

We review recent evidence and future directions for empirical research on financial contracting in the context of corporate finance. Specifically, we survey evidence pertaining to incentive conflicts, control rights, collateral, renegotiation, and interactions between financial contracts and...

Several impatient investors with private costs <em>C_i</em> face an indivisible irreversible investment opportunity whose value <em>V</em> is governed by geometric Brownian motion. The first investor <em>i</em> to seize the opportunity receives the entire payoff, <em>V-C_i</em>. We characterize the symmetric Bayesian Nash...

Many financing choices of US corporations remain puzzling even after accounting for standard determinants such as taxes, bankruptcy costs, and asymmetric information. We propose that managerial beliefs help to explain the remaining variation across and within firms, including variation in debt...

R&D-intensive firms such as biotechnology and pharmaceutical companies follow very different corporate financial policies from firms in less R&D-intensive industries. To account for these differences, we propose an equilibrium model for such firms in which their capital structure, amount of R&D...

An enduring puzzle is why credit rating agencies (CRAs) use a few categories to describe credit qualities lying in a continuum, even when ratings coarseness reduces welfare. We model a cheap-talk game in which a CRA assigns positive weights to the divergent goals of issuing firms and investors....

This paper analyzes the optimal capital budgeting mechanism when divisional managers are privately informed about the arrival of future investment projects. Consistent with field study evidence, an optimal allocation mechanism can include a stipulation that a capital request for discretionary...