An enduring puzzle is why credit rating agencies (CRAs) use a few categories to describe credit qualities lying in a continuum, even when ratings coarseness reduces welfare. We model a cheap-talk game in which a CRA assigns positive weights to the divergent goals of issuing firms and investors....

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 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...

This paper analyzes the effects of the way information is produced and transmitted through an organizational structure on the business dynamics of a firm. Specifically, I study its effects on the agency problem, concluding that it proves to be an efficient and effective solution to overcome the...

Moral hazard and disagreement are important economic frictions. How do their individual effects on economic behavior differ and how do these frictions interact when operating together? This paper addresses these questions by developing a canonical model of disagreement (generated by...

We offer a model in which sequences of individuals often converge upon poor decisions and are prone to fads, despite communication of the payoff outcomes from past choices. This reflects both direct and indirect action-based information externalities. In contrast with previous cascades...

We offer a model in which sequences of individuals often converge upon poor decisions and are prone to fads, despite communication of the payoff outcomes from past choices. This reflects both direct and indirect action-based information externalities. In contrast with previous cascades...

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...

This paper contributes empirically to the ‘Excess Sensitivity' literature by arguing that results obtained by using investment-cash flow sensitivity as a metric to represent finance constraint of firms can be misleading. This is because cash flow apart from signaling change in net worth may...