We analyze financial contracting when the specificity of investments is endogenous. Specialization decreases the liquidation value of assets, but it also improves a firm's long term productivity. While the first effect is known to make financing more difficult, we show that the second effect can...

Evidence indicates that private equity funds, unlike mutual funds, deliver persistent abnormal returns and that top performing funds are often oversubscribed. Why do private equity funds appear to leave money on the table, rather than, say, increasing fund size and/or fees? We argue that private...