We analyze the stability of efficiency rankings of German universal banks between 1993 and 2004. First, we estimate traditional efficiency scores with stochastic cost and alternative profit frontier analysis. Then, we explicitly allow for different risk preferences and measure efficiency with a...

We analyze the stability of efficiency rankings of German universal banks between 1993 and 2004. First, we estimate traditional efficiency scores with stochastic cost and alternative profit frontier analysis. Then, we explicitly allow for different risk preferences and measure efficiency with a...

Current corporate risk management theories predict that young firms should hedge more than the established ones. However, the claim is not supported by empirical observations, which also present mixed evidence on whether hedging creates value. This paper attempts to address this puzzle by...

Within the context of expected utility and in a discrete loss setting, we provide a complete account of the demand for insurance by strictly-risk averse agents and risk-neutral firms when they enjoy limited liability. When exposed to a bankrupting, binary loss and under actuarially fair prices,...

In a regime change game, agents sequentially decide whether to attack or not, without observing the past actions by others. To dissuade them from attacking, a principal adopts a dynamic information disclosure policy - repeated viability tests. A viability test publicly discloses whether the...

I study optimal financial contracting when neither cash flows nor the risk profile of project choices are verifiable. Using a contracting framework, I show the resulting two frictions (cash-diversion and asset-substitution) are intricately linked: to address the cash-diversion problem, an...

This paper reconsiders a central bank's problem of determining rules for information dissemination and risk taking behavior that minimize the probability of currency crises. In a global games approach, we find that optimal transparency is adversely related to prior market beliefs. In countries...

Efforts to control bank risk address the wrong problem in the wrong way. They presume that the financial crisis was caused by CEOs who failed to supervise risk-taking employees. The responses focus on executive pay, believing that executives will bring non-executives into line — using...

This paper examines the role of uncertainty and capital market imperfection in influencing firm investment. Introduction of uncertainty in the investment model allows for limited expandability and limited reversibility of capital over time other than what is dictated by firm's fundamentals and...