The impact of uncertainty on firms' investment outlays is subject to an ongoing debate. Theory identifies several channels. Irreversibility, financing constraints and risk aversion make a negative relationship between uncertainty and investment likely. On the other hand, the ability of firms to...

This paper investigates the extent of the holdup underinvestment problem in a buyer-seller relationship in which the seller has private information about his alternative trading opportunities. Theory predicts that, compared with a situation in which outside options are publicly observed, the...

The new public management of the 1980s was based in part on a range of important new insights about the role of transaction and agency costs arising from contractual incompleteness in defining the boundaries of the firm and the governance relationships within it. In this paper, we consider the...

We explore the rationale for regulatory rules that prohibit banks from developing some of their natural activities when their capital level is low, as epitomized by the US Prompt Corrective Action (PCA). This paper is built on two insights. First, in a moral hazard setting, capital requirement...

This paper investigates the effects of uncertainty on the investment behaviour using firm-level data for a sample of Belgian manufacturing firms. In general, the results confirm former analysis at the aggregate level, stating that uncertainty does matter but that the sign of the effect and its...

We quantify the role of financial factors behind the sluggish post-crisis performance of European firms. We use a firm-bank-sovereign matched database to identify separate roles for firm and bank balance sheet weaknesses arising from changes in sovereign risk and aggregate demand conditions. We...