How much of a loan should a lender dynamically retain and how does retention affect loan performance? We address these questions in a dynamic agency model in which a lender originates loans that it can sell to investors. The lender reduces default risk through screening at origination and...

Lending relationships matter for firm financing. In a model of debt dynamics, we study how lending relationships are formed and how they impact leverage and debt maturity choices. In the model, lending relationships evolve through repeated interactions between firms and debt investors. Stronger...

We study the effects of diversifying funding sources on the financing conditions for firms. We exploit a regulatory reform that took place in Italy in 2012, i.e. the introduction of ‘minibonds’, which opened a new market-based funding opportunity for unlisted firms. Using the Italian Credit...

We develop a dynamic tradeoff model to examine the importance of manager-shareholder conflicts in capital structure choice. Using panel data on leverage choices and the model's predictions for different statistical moments of leverage, we show that while refinancing costs help explain the...

We document that corporates in emerging markets borrow more in foreign currency when the local currency provides a better hedge in downturns. We develop an international corporate finance model in which firms facing adverse selection choose the foreign currency share of their debt. In the unique...

We model the joint effects of debt maturity and cash holdings on default risk. When firms have short-term debt outstanding, negative cash flow shocks lead to a drop in liquid reserves and may cause firms to suffer losses when rolling over their debt, due to weaker fundamentals. This mechanism...

We model the financing, cash holdings, and hedging policies of a firm facing financing frictions and subject to permanent and transitory cash flow shocks. We show that permanent and transitory shocks generate distinct, sometimes opposite, effects on corporate policies and use the model to...

We revisit the relation between equity returns and financial leverage through the lens of a trade-off model with costly capital structure rebalancing. The model provides a “lookalike” Modigliani-Miller equation that predicts that expected equity returns depend on whether a firm's leverage is...

Theory has recently shown that corporate policies should depend on firms' exposure to short- and long-lived cash flow shocks and the correlation between these shocks. We provide granular estimates of these parameters for Compustat firms using a new filter that uses only cash flow data and the...

Does a diversification of funding sources affect the financing conditions for firms? To answer this question we study a regulatory reform which allowed unlisted firms to issue minibonds. Using the Italian Credit Register, we compare new loans granted to issuer firms with new loans concurrently...