I develop a dynamic agency model of financial contracting, where borrowing constraints appear as part of the optimal contract. The novelty of the paper relative to previous work is that volatility is stochastic and exogenous to the agent behavior. A line of credit appears in the optimal long...

When firms want to raise external financing, why do they resort to contracts with fixed repayment, i.e., standard debt contracts? The canonical work of Gale and Hellwig (Rev Econ Stud, 52(4):647–663, 1985) gives the following answer to this question: Assuming that only the entrepreneur can...

The paper investigates the effects of macroeconomic conditions on firms' capital structure. We introduce a repeated lender-borrower interaction that allows for debt and equity financing to co-exist as optimal securities in every period. The presence of asymmetric information in the market for...

In a simple risk-sharing environment with ex post private information, conditions are found under which a collateralized debt contract is the optimal allocation. The critical condition for optimality is that the borrower values the collateral good more highly than does the lender; otherwise the...

CEO contractual protection, in forms of CEO employment agreements and CEO severance pay agreements, is prevalent among S&P 1500 firms. While prior research has examined the impact of these agreements on corporate decisions from shareholders’ perspective, there is little research on the impact...

We exploit plausibly exogenous variation in the tax consequences of renegotiating U.S. syndicated loans to isolate the effect of renegotiation costs on initial contract terms. TD9599 materially reduced the tax burden of renegotiating U.S. syndicated loans, while leaving the taxation of...