In the past two decades, academic research has produced massive evidence of the beneficial role of financial development for growth and the allocation of investment. Our current vision, however, is dominated by instances of dysfunctional behavior of financial markets associated with acute and...

Has economic research been helpful in dealing with the financial crises of the early 2000s? On the whole, the answer is negative, although there are bright spots. Economists have largely failed to predict both crises, largely because most of them were not analytically equipped to understand...

We provide international evidence on the relationship between the extent of underpricing related to initial public offerings (IPOs) and the distance of the issuing firm from the financial centre of a country: for France, Germany and Italy, the higher the distance, the higher the level of...

We investigate whether information sharing among banks has affected credit market performance in the transition countries of Eastern Europe and the former Soviet Union, using a large sample of firm-level data. Our estimates show that information sharing is associated with improved availability...

The aim of this paper is to provide further insights into the linkages between stock market development and economic growth. When it is not possible to distinguish between investment projects with different rates of return, market valuation of those projects is an “average value” reflecting...

We analyze the welfare implications of liquidity constraints for households in an overlapping generations model with growth. In a closed economy with exogenous technical progress, liquidity constraints reduce welfare if the economy is dynamically inefficient. But if it is dynamically efficient,...

In an overlapping generations economy households (lenders) fund risky investment projects of firms (borrowers) by drawing up loan contracts on the basis of asymmetric information. An optimal contract entails either the issue of only debt or the issue of both debt and equity according to whether...

How does finance affect employment and inter-industry job reallocation? We present a model that predicts that financial development (i) increases employment and/or labor productivity and wages, with a smaller impact at high levels of the equilibrium wage and financial development; (ii) may...

The paper investigates optimal financial contracts when investment in pledgeable assets is endogenous and not observable to financiers. In a setting with uncertainty, two inputs with different collateral value and investment unobservability, we show that a firm-bank secured credit contract is...

If management has high private benefits and owns a small equity stake, managers and workers are natural allies against a takeover threat. Two forces are at play. First, managers can transform employees into a "shark repellent" through long-term labor contracts and thereby reduce the firm's...