We propose and test a theory of corporate liquidity management in which credit lines provided by banks to firms are a …-seeking behavior by firms. Firms with high liquidity risk are likely to use cash rather than credit lines for liquidity management … because the cost of monitored liquidity insurance increases with liquidity risk. We exploit a quasi-experiment around the …

We propose and test a theory of corporate liquidity management in which credit lines provided by banks to firms are a …-seeking behavior by firms. Firms with high liquidity risk are likely to use cash rather than credit lines for liquidity management … because the cost of monitored liquidity insurance increases with liquidity risk. We exploit a quasi-experiment around the …

We propose and test a theory of corporate liquidity management in which credit lines provided by banks to firms are a …-seeking behavior by firms. Firms with high liquidity risk are likely to use cash rather than credit lines for liquidity management … because the cost of monitored liquidity insurance increases with liquidity risk. We exploit a quasi-experiment around the …

We develop a theory of optimal bank leverage in which the benefit of debt in inducing loan monitoring is balanced … against the benefit of equity in attenuating risk-shifting. However, faced with socially-costly correlated bank failures …, regulators bail out creditors. Anticipation of this generates multiple equilibria, including one with systemic risk in which …

We develop a theory of optimal bank leverage in which the benefit of debt in inducing loan monitoring is balanced … against the benefit of equity in attenuating risk-shifting. However, faced with socially-costly correlated bank failures …, regulators bail out creditors. Anticipation of this generates multiple equilibria, including one with systemic risk in which …

We address the paradox that financial innovations aimed at risk-sharing appear to have made the world riskier … liquid assets. When risk-sharing is primitive, agents selfhedge and hold more liquid assets; this buffers aggregate risks …, resulting in few correlated failures compared to when there is greater risk sharing. We apply this insight to build a model of a …