Financial crises are particularly severe and lengthy when banks fail to recapitalize after bearing large losses. We present a model that explains the slow recovery of bank capital and economic activity. Banks provide intermediation in markets with information asymmetries. Large equity losses...

Financial crises are particularly severe and lengthy when banks fail to recapitalize after bearing large losses. We present a model that explains the slow recovery of bank capital and economic activity. Banks provide intermediation in markets with information asymmetries. Large equity losses...

In this paper, we argue that better corporate governance may reduce information asymmetries among investors. We find that corporate governance affects asset pricing and returns through the channel of adverse selection. Adverse selection has significant additional explanatory power in five-factor...