In imperfectly competitive credit markets, banks can face a tradeoff between exploiting their market power and enforcing hard budget constraints. As market power rises, banks eventually find it too costly to discipline underperforming borrowers by stopping their projects. Lending relationships...

The London Interbank Offered Rate (Libor) is a set of vital benchmark interest rates to which hundreds of trillions of dollars of financial contracts are tied. The rates are set each day via a survey of large banks. In recent years, strange behavior of the rates have caused observers to question...

This study examines the differences in the relationships between different stakeholders in conventional and Islamic financial institutions. The accounting and finance literature identifies the major contractual relationships as being those between managers and shareholders (employment contracts)...

We examine the impact of credit default swaps (CDS) on lending relationships and credit market efficiency. CDS insulate lenders against losses from forcing borrowers into default and liquidation. This improves the credibility of foreclosure threats, which can have positive implications for...

Information-based theories of financial intermediation focus on delegated monitoring. However, there is little evidence on how markets discipline intermediaries who fail at this function. We exploit the direct link between corporate fraud and monitoring failure and examine how a venture capital...

Greater competition in banking is traditionally believed to aggravate banks' incentive to take excessive risks. This paper presents a model in which, contrary to the traditional view, an increase in competition can cause banks to behave more prudently: As competition intensifies and margins...

Less-intense competition for deposits, by mitigating banks' incentive to take excessive risks, is traditionally believed to lead to lower non-performing loan (NPL) ratios and more-stable banks. This paper revisits this proposition in a model with borrower moral hazard in which banks' NPL ratios...

Collateral plays two roles. It may be used as an ex-ante commitment mechanism against agency risk or for hedging expected default risk. Using cross-country loan level data, we find that the commitment motive alone explains collateralization. Going from the lowest to highest quartile of ex-ante...

In this paper, I examine the impact of ambiguity (Knightian uncertainty), alongside that of risk, on firms’ voluntary disclosure decisions. I confirm the well-known result that an increase in risk— uncertainty over outcomes—is associated with an increase in management guidance (earnings...