This paper investigates regulations for a bank that is covered by deposit insurance in a dynamic setting where bankruptcy entails social costs. Regulatory policy operates through rules governing the bank's capital structure and asset allocation that may be adjusted each period. Throughout, the...

We investigate the trade-off between incentive provision and inefficient rollover freezes for a firm financed with staggered short-term debt. First, debt maturity that is too short-term is inefficient, even with incentive provision. The optimal maturity is an interior solution that avoids...

Banks are special, and so is the corporate governance of banks and other financial institutions as compared with the general corporate governance of non-banks. Empirical evidence, mostly gathered after the financial crisis, confirms this. Banks practicing good corporate governance in the...

Banks allocate capital across business units while facing multiple constraints that may bind contemporaneously or only in future states. When risks rise or risk management strengthens, a bank reallocates capital to the more efficient unit. This unit would have generated higher constraint- and...

We document that corporate insiders' trading behavior exhibits persistence over time. Classifying insiders as “Persistently Profitable (PP)” based on profits generated from historical trades, we find the current transactions of these insiders better predict firm performance. The relative...

This paper explains both the onset of the financial crisis in 1998 and the striking economic recovery afterwards in Russia and other Former Soviet Union (FSU) economies. Before the crisis banks do not lend to the real sector of the economy and firms use non-bank finance, including trade credits...

This paper empirically investigates the effect of bank capital ratios on loan spreads using a dataset of all syndicated loans issued by public non-financial U.S. firms during the 1993 to 2007 period. We find evidence that banks with high capital ratios charge higher spreads. We further...

This paper studies a novel type of misallocation of credit between investments of varying liquidity. One type of investment is more liquid, i.e., its return is more pledgeable, and the other is more productive. Low liquidities of both investment types imply that the allocation of credit is...

Debt financing plays an important role in the funding of innovative firms, and patents have been increasingly used as collateral. We examine financing of innovative firms when future innovations are not verifiable and hence patenting, which creates a verifiable asset, cannot be contracted upon....

This paper intends to analyse the default risk in micro, small and medium enterprises (MSMEs) and its relation to new debt opportunities, debt overhang theory and growth intention. The results confirm that cash flow, capacity and leverage are the major determinants of firms' default, while gross...