We develop an agency model of financial contracting. We derive long-term debt, a line of credit, and equity as optimal securities, capturing the debt coupon and maturity; the interest rate and limits on the credit line; inside versus outside equity; dividend policy; and capital structure...

Agency problems limit firms' access to capital markets, curbing investment. Firms and investors seek contractual ways to mitigate these problems. What are the implications for investment? We present a theory of a firm's investment dynamics in the presence of agency problems and optimal long-term...

We present a rational general equilibrium model that highlights the fact that relative wealth concerns can play a role in explaining financial bubbles. We consider a finite-horizon overlapping generations model in which agents care only about their consumption. Though the horizon is finite,...

I show that when an issuer has superior information about the value of its assets, it is better off selling assets separately rather than as a pool due to the information destruction effect of pooling. If, however, the issuer can create a derivative security that is collateralized by the assets,...

This article studies a dynamic agency problem in which a risk-averse agent can save privately. In the optimal contract, (i) cash compensations exhibit downward rigidity to failures; (ii) permanent pay raises occur when the agent's historical performance is sufficiently good; (iii) and when the...

This article analyzes the dynamic coordination problem among creditors of a firm with a time-varying fundamental and a staggered debt structure. In deciding whether to roll over his debt, each maturing creditor is concerned about the rollover decisions of other creditors whose debt matures...

By generalizing the Leland and Pyle (1977) model to the case of multiple correlated assets, this paper studies the signaling and hedging behavior of an intermediary who sells multiple assets in financial markets. Based on information asymmetry, this paper demonstrates the intrinsic...

This paper studies a continuous-time agency model in which the agent controls the drift of the geometric Brownian motion firm size. The changing firm size generates partial incentives, analogous to awarding the agent equity shares according to her continuation payoff. When the agent is as...

This article analyzes the dynamic coordination problem among creditors of a firm with a time-varying fundamental and a staggered debt structure. In deciding whether to roll over his debt, each maturing creditor is concerned about the rollover decisions of other creditors whose debt matures...