We develop a theory of optimal financing for R&D-intensive firms. With only market financing, the firm relies exclusively on equity financing and carries excess cash, but underinvests in R&D. We use mechanism design to examine how intermediated financing can attentuate this underinvestment. The...

We develop a structural model to quantitatively analyze the effects of asymmetric beliefs and agency conflicts on capital structure. Capital structure reflects the dynamic tradeoff between the positive incentive effects of managerial optimism and the negative effects of risk-sharing costs....

We study the effects of monetary-policy-induced changes in Tobin's q on corporate investment and capital structure. We develop a theory of the mechanism, provide empirical evidence, evaluate the ability of the quantitative theory to match the evidence, and quantify the relevance for monetary...

Empirical evidence suggests that capital structure varies across firms facing different levels of information asymmetry, however, this evidence contradict the prediction of pecking order hypothesis. Although debt capacity constraints offer some explanation for this discrepancy, it fails to...

I develop a dynamic model of financing decisions and optimal debt maturity choice in which creditors face adverse selection and learn about the firm's quality from news. In equilibrium, shareholders may choose to postpone debt issuance to reduce adverse selection and improve the pricing of newly...

In this study, we examine whether firms' engagement in Investor Relations and Stakeholder Communication (IRSC) activities reduce the cost of information asymmetry at the time of external financing. We also analyze the intermediary role of financing source (debt vs equity) and the existing level...

Larger firms (by sales or employment) have higher leverage. This pattern is explained using a model in which firms produce multiple varieties and borrow with the option to default against their future cash ow. A variety can die with a constant probability, implying that bigger firms (those with...

Business groups in emerging markets perform better than unaffiliatedfirms. One explanation is that business groups substitute some functions ofmissing institutions, for example, enforcing contracts. We investigate thisby setting up a model where firms within the business group are connectedto...

This paper examines the effects of capital gains taxation on firms’ investmentand financing decisions. We develop a real options model in which the timing ofinvestment, the decision to default, and the firm’s capital structure are endogenouslyand jointly determined. Our analysis demonstrates...

This paper examines the effects of capital gains taxation on firms’ investmentand financing decisions. We develop a real options model in which the timing ofinvestment, the decision to default, and the firm’s capital structure are endogenouslyand jointly determined. Our analysis demonstrates...