The purpose of this Paper is to study the determinants of the concentration of ownership in a privatized, regulated firm. The discussion illustrates some aspects of the costs and benefits of different corporate systems. Privatized utilities are large firms with professional management: there is...

When data on actual choices are not available, researchers studying preferences sometimes pose choice scenarios and ask respondents to state the actions they would choose if they were to face these scenarios. The data on stated choices are then used to estimate random utility models, as if they...

The EU faces challenges in reforming the Gas and Electricity Directives to implement the single market in electricity and gas. The Paper argues that there is unfinished business in the areas of regulation, restructuring, encouraging proper risk management through contracting, and designing...

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...

Do religious beliefs affect real economic decisions? We investigate this fundamental question by comparing default rates on conventional and Islamic loans using a comprehensive monthly dataset from Pakistan that follows more than 150,000 loans over the period 2006:04 to 2008:12. We find robust...

An iconic model with high leverage and overvalued collateral assets is used to illustrate the amplification mechanism driving asset prices to ‘overshoot’ equilibrium when an asset bubble bursts - threatening widespread insolvency and what Richard Koo calls a ‘balance sheet recession’....

Intuition suggests that firms with higher cash holdings are safer and should have lower credit spreads. Yet empirically, the correlation between cash and spreads is robustly positive and higher for lower credit ratings. This puzzling finding can be explained by the precautionary motive for...

We consider the debt capacity of a risky asset when debt is being rolled over and there is a liquidation cost in case of default. We show that debt capacity depends on how information about the quality of the asset is revealed. When the information structure is based on “optimistic”...

This paper analyses the interaction of financing and output market decisions in an oligopolistic setting. We integrate two ideas that have been analysed separately in previous work: some authors argue that due to risk-shifting, debt (leverage) makes a firm 'aggressive' in its output market;...

We conduct a theoretical and empirical investigation of the impact of bankruptcy codes on firms’ capital-structure choices. In our theoretical framework, costs of financial distress are endogenously determined as a function of the bankruptcy code. Anticipated liquidation values emerge as the...