We provide a theory of informal communication-cheap talk-between firms and capital markets that incorporates the role of agency conflicts between managers and shareholders. The analysis suggests that a policy of discretionary disclosure that encourages managers to attract the market's attention...

This paper explores the incentive effects of a renewal clause in a lease. The basis of selection is rank-order performance. The authors' findings, in the context of a principal-agent model, are as follows. In order to extract greater effort from tenants (i.e., agents), the landlord (the...

This paper studies the possibility of endogenous fluctuations caused by activities of financial intermediaries. Risk-averse agents borrow from banks and invest in a risky two-state capital technology. The probability of success with the technology is assumed to be decreasing in the amount of...

The vast majority of firms in developing economies are micro and small enterprises owned by families whose members also provide the labour to the units. Often, they fail to grow in size even with the relaxation of credit constraints. In this paper, we show that frictions in the labour market...

This paper investigates the dynamic relations between external factors, domestic macroeconomic factors with sovereign spreads, debt to GDP ratio, etc. in Asian emerging countries. First, we develop a theoretical model that determines the equilibrium debt level, probability of default and...

The purpose of this paper is to analyze the determination of wage rates in a setting where the health capital of labor accumulates over time. Our conclusions are (1) the efficiency wage in a dynamic framework exceeds the static wage rate and (2) there is a possibility of multiple steady state...

This paper shows that stakeholders' multilateral opportunistic behaviour during financial distress may lead to premature liquidation of the firm. Consequently, the firm will use its capital structure to mitigate the costs of such opportunism. Specifically, the firm will reduce its debt so that...

We construct a model to show that active financial intermediation can induce economic fluctuations. We embed a financial sector in a simple overlapping generation model with a single stock of capital. Individuals are risk averse agents that face idiosyncratic risks in their business activities:...