This paper presents evidence supporting the theory that informational and incentive problems in capital markets affect firm investment. This hypothesis is tested by estimating investment equations for two groups of German manufacturing firms. The first group of firms are those with bank...

Does inefficiency of financial markets have real consequences? Or does it only result in transfers of wealth from noise traders to arbitrageurs? We study firm business investment to address this question. In our model, benevolent managers of overvalued companies invest in projects with negative...

We incorporate costly external finance in a production based asset pricing model and investigate whether financing frictions are quantitatively important for pricing a cross-section of expected returns. We show that the common assumptions about the nature of the financing frictions are captured...

We model corporate liquidity policy and show that aggregate risk exposure is a key determinant of how firms choose between cash and bank credit lines. Banks create liquidity for firms by pooling their idiosyncratic risks. As a result, firms with high aggregate risk find it costly to get credit...

This paper uses a unique micro-level data-set on Chinese firms to test for the existence of a 'political-pecking order' in the allocation of credit. Our findings are threefold. Firstly, private Chinese firms are credit constrained while State-owned firms and foreign-owned firms in China are not;...

The literature on research joint ventures (RJVs) has emphasized internalizing spillovers and cost-sharing as motives for RJV formation. In this paper we develop two additional explanations: product market complementarities and firm heterogeneity. We analyse a model of RJVs with asymmetric firms...

Frequently, aspiring entrants have only limited information about their potential rivals’ entry decisions. As a result, the outcome of the entry game may be that more firms enter than the market can sustain; or, at least, that unnecessary entry investments are made. We refer to these outcomes...

We analyse productivity growth in UK manufacturing 1980-92 using the newly available ARD panel of establishments drawn from the Census of Production. We examine the relative importance of 'internal' restructuring (such as new technology and organizational change) and 'external' restructuring...

Using two matched plant level skills and productivity datasets for UK manufacturing we document that (i) more productive firms hire more skilled workers: in 2000, plants at the top decile of the TFP distribution (controlling for their four-digit industry) hired workers with, on average, around...

Nearly all post-war recessions were preceded by oil-price shocks, but is this because spikes in the price of oil cause economic downturns? At the heart of this question lies an identification problem: oil prices and the state of the world economy are endogenously determined. This paper uses...