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...

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...

We study whether Section 404 of the Sarbanes-Oxley Act of 2002 made cross-listed firms less opaque via an examination of analyst earnings forecasts. To test this, we compare European Union (EU) firms that are cross-listed in the US — and therefore subject to S404 — with comparable EU firms...

We argue that the recent corporate governance reform in the Netherlands provides a natural experiment to explore the impact of changes in corporate governance on financing policy. We find that, relative to a control sample of comparable firms outside the Netherlands, Dutch firms significantly...

We develop an asset substitution framework to analyze the desirability of fair pricing of government guarantees for bank liabilities. We find that fair pricing of guarantees is desirable if and only if the banking sector is sufficiently transparent. In opaque banking systems, there is little...

Strategic investors, such as corporate venture capitalists, engage in the financing of start-up firms to complement their core businesses and to facilitate the internalization of externalities. We argue that while strategic objectives make it more worthwhile for an investor to elicit high...

This paper provides a financial intermediation approach to analyzing the real effects of bank market power. We start from the idea that banks, when operating in imperfectly competitive credit markets, can face a trade-off between exploiting their loan pricing power and enforcing hard corporate...

Recent literature suggests that higher capital requirements for banks might lead to a socially costly crowding out of deposits by equity. This paper shows that additional equity in banks can help to crowd in deposits. Intuitively, as banks have more equity and become safer, the cost of deposit...

We study mechanisms by which the provision of incentives to new entrants is influenced by lenders' financial interests in incumbents. When a financier has a strong interest in protecting incumbent rents, he stifles the entrant's internal efficiency with a highly dilutive claim, and bribes her...

I study a model of intermediated trade in asset markets in which intermediaries are debt-financed. Intermediary leverage gives rise to risk-shifting, causing intermediaries to overbid for risky assets in good times when funding liquidity is not scarce. The ensuing asset price bubble can help to...