In a simple search model of money, we study a special kind of memory which gives rise to an arrangement resembling a payment network. Specifically, we assume that agents can choose to have access to a central data base which keeps track of payments made and received. We show that multiple...

Liquid markets where agents have limited capacity to sign exclusive contracts, as well as imperfect knowledge of previous transactions by others, may permit agents to promise the same asset to multiple counterparties and subsequently default. I show that in such markets an exchange can arise as...

Entrepreneurs often face undiversifiable idiosyncratic risks from their business investments. Motivated by this observation, we extend the standard real options approach to investment to an incomplete markets environment and analyze the joint decisions of business investments, consumption-saving...

We develop a structural model of the leverage choices of risk-averse managers who are compensated with cash and stock. We further characterize credit spread dynamics over the life of the debt. Managers optimally balance the tax benefits of debt with the utility cost that results from their...

Empirical methods in corporate finance for some time focused on the short-term market reaction to corporate announcements. The associated theories rely heavily on market imperfections such as taxes, transaction costs, information issues and contracting problems to obtain short-term market...

How are foreign direct investment (FDI) flows and patterns of multinational firm (MNC) activity determined in a world with frictions in financial contracting and variations in institutional environments? As developers of technologies, MNCs have long been characterized as having comparative...

This paper develops a new framework that combines agency problems associated with managerial behavior and firm finance in a dynamic macroeconomic model. Agency costs arise because neither the shareholders nor the debt provider can directly control the manager's choice of how much risk to assume,...

This paper studies the role of leasing of productive assets. When capital is leased (or rented), it is more easily repossessed and hence leasing has higher debt capacity and relaxes financing constraints. However, leasing gives rise to an agency problem with regard to the care with which the...