This paper studies the joint effect of conservatism and aggregation on the cost of equity capital and the efficiency of debt contracts. In the model, a firm's two assets are valued at either the lower-of-cost-or-market or fair value and the accounting report aggregates the value of the two...

The G7 countries traditionally display home bias in assets (equities and bonds), but over the last 25 years this bias has progressively decreased, especially for equity portfolios. At the same time, the indebtedness of non-financial corporations has tended to increase and comove across...

We present a DSGE model where firms optimally choose among alternative instruments of external finance. The model is used to explain the evolving composition of corporate debt during the financial crisis of 2008-09, namely the observed shift from bank finance to bond finance, at a time when the...