A seller can make investments that affect a tradable asset's future returns. The potential buyer of the asset cannot observe the seller's investment prior to trade, nor does he receive any signal of it, nor can he verify it in anyway after trade. Despite this severe moral hazard problem, this...

"This paper presents a model of the financial structure of private equity firms. In the model, the general partner of the firm encounters a sequence of deals over time where the exact quality of each deal cannot be credibly communicated to investors. We show that the optimal financing...

Managers often claim that an important source of value in acquisitions is the acquiring firm's ability to finance investments for the target firm. This claim implies that targets are financially constrained prior to being acquired and that these constraints are eased following the acquisition....