The authors examine the effects of changes in competitive conditions on the structure of loan contracts. In particular, they present conditions in which greater loan market competition reduces the stringency of contractual collateral requirements, a prediction that is consistent with anecdotal...

The authors examine a firm's choice between public and private debt in a model where the firm's financing source affects its product market behavior. Two effects are examined. When frims' risk-taking decisions are strategic substitutes, debt financing leads to excessively risky product market...

The authors empirically examine the hypothesis that access to deposits with inelastic rates (core deposits) permits a bank to make contractual agreements with borrowers that are infeasible if the bank must pay market rates for its funds. Access to core deposits insulates a bank's costs of funds...

The authors derive optimal financial claim for a bank when the borrowing firm's uninformed stakeholders depend on the bank to establish whether the firm is distressed and whether concessions by stakeholders are necessary. The bank's financial claim is designed to ensure that it cannot collude...

The authors empirically examine the hypothesis that access to deposits with inelastic rates (core deposits) permits a bank to make contractual agreements with borrowers that are infeasible if the bank must pay market rates for its funds. Access to core deposits insulates a bank's costs of funds...

This paper explores the optimal financial contract for a large investor with potential control over a firm's investment decisions. The authors show that an optimally designed menu of claims for a large investor will include features resembling a U.S. version of lender liability doctrine,...

Competition in retail and wholesale funding markets affect the incentive for originators (like investment bankers) and fund managers (like mutual funds) to form integrated intermediaries (banks). Independent firms integrate both to produce higher yielding, illiquid assets and to suppress...