In most countries, suppliers of intermediate goods and services are also the main providers of short-term financing to firms. This paper studies the macroeconomic implications of these financial links. In our model, trade credit is the outcome of a long-term contract between firms linked in the...

We quantify the role of financial factors that have contributed to sluggish investment in Europe in the aftermath of the 2008-2009 crisis. Using a big data approach, we match the firms to their banks based on banking relationships in 8 European countries over time, obtaining over 2 million...

In competitive capital markets, risky debt claims that offer high yields in good times have high systematic risk exposure in bad times. We apply this idea to bank risk measurement. We find that banks with high accounting return on equity (ROE) prior to a crisis have higher systematic tail risk...

Short-term borrowing has often been blamed for precipitating financial crises. We argue that while the empirical association between a financial institution's, or country's, short-term borrowing and susceptibility to crises may, in fact, exist, the direction of causality is often precisely the...

The post-Global Financial Crisis period shows a surge in corporate leverage in emerging markets and a number of countries with deteriorated corporate financial fragility indicators (Altman's Z-score). Firm size plays a critical role in the relationship between leverage, firm fragility and...

Financial crises typically arise because firms and financial institutions choose balance sheets that expose them to aggregate risk. We propose a theory to explain these risk exposures. We study a financial accelerator model where entrepreneurs can issue state-contingent claims to consumers. Even...

Although firm financial policies were affected by a credit contraction during the recent financial crisis, the impact of increased uncertainty and decreased growth opportunities was stronger than that of the credit contraction per se. From the start of the financial crisis (third quarter of...

This paper uses a unique dataset to study how firms managed liquidity during the financial crisis. Our analysis provides new insights on the interactions between internal liquidity, external funds, and real corporate decisions, such as investment and employment. We first describe how companies...

An equilibrium model of financial crises driven by Irving Fisher's financial amplification mechanism features a pecuniary externality, because private agents do not internalize how the price of assets used for collateral respond to collective borrowing decisions, particularly when binding...