The use of debt to finance risky entrepreneurial-firm projects is rife with informational and contracting problems. Nonetheless, we document widespread lending to startups in three innovation-intensive sectors and in early stages of development. At odds with claims that the secondary patent...

In this paper we explore the mechanisms that allow securities analysts to value companies in contexts of Knightian uncertainty, that is, in the face of information that is unclear, subject to unforeseeable contingencies or to multiple interpretations. We address this question with a...

We analyse credit market equilibrium when banks screen loan applicants. When banks have a convex cost function of screening, a pure strategy equilibrium exists where banks optimally set interest rates at the same level as their competitors. This result complements Broecker’s (1990) analysis,...

The spectacular failure of top-rated structured finance products has brought renewed attention to the conflicts of interest of Credit Rating Agencies (CRAs). We model both the CRA conflict of understating credit risk to attract more business, and the issuer conflict of purchasing only the most...

The collapse of so many AAA-rated structured finance products in 2007-2008 has brought renewed attention to the causes of ratings failures and the conflicts of interest in the Credit Ratings Industry. We provide a model of competition among Credit Ratings Agencies (CRAs) in which there are three...

Why do some start-up firms raise funds from banks and others from venture capitalists? To answer this question, I develop a model of start-up financing when intellectual property rights are not well protected. The upside of VC financing is that the VC understands the business better than a bank....

In a financial contracting model, we study the optimal debt structure to resolve financial distress. We show that a debt structure where two distinct debt classes co-exist - one class fully concentrated and with control rights upon default, the other dispersed and without control rights -...

Most economic interactions happen in a context of sequential exchange in which innocent third parties suffer information asymmetry with respect to previous "originative" contracts. The law reduces transaction costs by protecting these third parties but preserves some element of consent by...

The provision of non-audit services by auditors to their audit clients reduces total costs, increases technical competence and motivates more intense competition. Furthermore, these services do not necessarily damage auditor independence nor the quality of non-audit services. This assessment...

This article examines the private mechanisms used to safeguard quality in auditing, with a view to defining rules capable of facilitating the performance of market forces. An outline is given of a general theory of private quality assurance in auditing, based on the use of quasi-rents to...