We study a dynamical model of interconnected firms which allows for certain market imperfections and frictions, restricted here to be myopic price forecasts and slow adjustment of production. Whereas the standard rational equilibrium is still formally a stationary solution of the dynamics, we...

This paper looks at the effects of entrepreneurial optimism on financial contracting and corporate performance. Optimism may increase effort, but is bad for adaptation decisions as the entrepreneur underweights negative information. The first-best contract with an optimist uses contigencies for...

Optimistic beliefs are a source of nonpecuniary benefits for entrepreneurs that can explain the ldquo;Private Equity Puzzle.rdquo; This paper looks at the effects of entrepreneurial optimism on financial contracting. When the contract space is restricted to debt, we show the existence of a...

In many instances, acirc;not;?independently mindedacirc;not;? top ranking executives can imposestrong discipline on their CEO, even though they are formally under his authority.This paper argues that the use of such a disciplining mechanism is a key feature ofgood corporate governance

In many instances, 'independently-minded' top-ranking executives can impose strong discipline on their CEO, even though they are formally under his authority. This paper argues that the use of such a disciplining mechanism is a key feature of good corporate governance. We provide robust...

We show empirically that banks' exposure to interest rate risk, or income gap, plays a crucial role in monetary policy transmission. In a first step, we show that banks typically retain a large exposure to interest rates that can be predicted with income gap. Secondly, we show that income gap...

When a bank experiences a negative shock to its equity, one way to return to target leverage is to sell assets. If asset sales occur at depressed prices, then one bank's sales may impact other banks with common exposures, resulting in contagion. We propose a simple framework that accounts for...

In many instances, “independently-minded” top-ranking executives canimpose strong discipline on their CEO, even though they are formally underhis authority. This paper argues that the use of such a disciplining mechanismis a key feature of good corporate governance.We provide robust...

"There are two non-mutually exclusive theories of individual variations in pro-capitalism opinions. The first theory views pro-capitalism opinions as self-serving: Individuals are opposed to market forces when they threaten their economic rents. The second theory views differences in such...

Using loan level data, we provide evidence consistent with risk-shifting in the lending behavior of a large subprime mortgage originator { New Century Financial Corporation { starting in 2004. This change follows the monetary policy tightening implemented by the Fed in the spring of 2004, which...