An enduring puzzle is why credit ratings are coarse indicators of issuer credit quality, with a relatively small number of ratings categories being used to describe credit qualities that lie in a continuum. We develop a theoretical model to explain why ratings are coarse even though coarseness...

We present a dynamic model of an IPO market in which firms go public to raise capital for investment. The original shareholders have inside information with respect to the quality of their firm's investment opportunities, and they decide whether to go public, how much capital to raise and...

An enduring puzzle is why credit rating agencies (CRAs) use a few categories to describe credit qualities lying in a continuum, even when ratings coarseness reduces welfare. We model a cheap-talk game in which a CRA assigns positive weights to the divergent goals of issuing firms and investors....

We develop a structural model to quantitatively analyze the effects of asymmetric beliefs and agency conflicts on capital structure. Capital structure reflects the dynamic tradeoff between the positive incentive effects of managerial optimism and the negative effects of risk-sharing costs....

We develop a theory of optimal financing for R&D-intensive firms. With only market financing, the firm relies exclusively on equity financing and carries excess cash, but underinvests in R&D. We use mechanism design to examine how intermediated financing can attentuate this underinvestment. The...

The search of valuable investment opportunities is one of the fundamental responsibilities of corporate managers. Existing studies of this search process usually model the investment opportunity as a binary signal and the role of the manager ends when such signal arrives. This paper studies a...

This paper analyzes the effects of the way information is produced and transmitted through an organizational structure on the business dynamics of a firm. Specifically, I study its effects on the agency problem, concluding that it proves to be an efficient and effective solution to overcome the...

An information cascade occurs when it is optimal for an individual, having observed the actions and possibly payoffs of those ahead of him, to take the same action regardless of his own information. When there are informational cascades, society may reap only a modest fraction of the potential...

Moral hazard and disagreement are important economic frictions. How do their individual effects on economic behavior differ and how do these frictions interact when operating together? This paper addresses these questions by developing a canonical model of disagreement (generated by...