This paper proposes and tests a model of firm valuation under incompleteinformation that explains the ambiguous relation between idiosyncratic volatilityand stock returns. Specifically, we show that, when investors have incompleteinformation, expected returns as measured by an econometrician...

In a Lucas orchard with heterogeneous beliefs, we study the link between market-wide uncertainty, difference of opinionsand co-movement of stock returns. We show that this link plays an important role in explaining the dynamics of equilibriumvolatility and correlation risk premia. In our...

Implementing performance pay requires that workers' output be measured. Whenmeasurement costs differ among firms, those with a measurement cost advantage choose toimplement performance pay. They attract the best workers, and both the level and variabilityof compensation are higher at these firms...

In this paper I consider the impact of a noisy indicator regarding a manager's manipulative behavior on optimal effort incentives and the extent of earnings management. The analysis in this paper extends a twotask, single performance measure LEN model by including a binary random variable. I...

In this paper we analyze a dynamic agency problem where contracting parties do not know the agent's future productivity at the beginning of the relationship. We consider a two-period model where both the agent and the principal observe the agent's second-period productivity at the end of the...

We analyze the role of intermediaries in electronic markets using detailed data of more than 14,000 originated loans on an electronic P2P (peer-to-peer) lending platform. In such an electronic credit market, lenders bid to supply a private loan. Screening of potential borrowers and the...

Small and medium-sized firms often obtain capital via a mixture of relationshipand arm's-length bank lending. We show that such heterogeneous multiple bankfinancing leads to a lower probability of inefficient credit foreclosure than bothmonopoly relationship lending and homogeneous multiple bank...

This paper develops a theoretical model of dynamic decision-making of a monetarypolicy committee with heterogeneous members. It investigates the optimal transparency,and the optimal way of transmitting information of committees, by analysing the effectsdifferent communication strategies have on...

By using short-term direct finance firms of the highest credit quality exposethemselves to rollover risk in the public debt markets. Firms insure themselvesagainst this risk by securing backup lines of credit from banks that they mayuse should market liquidity dry up. In a first step, this paper...