We analyze the extent to which reputational concerns may overcome moral hazard problems in credit markets. In such markets, loan contracts are common, and with loan contracts, borrowers have incentives to take on high levels of risk if lenders cannot observe the types of projects in which...

We examine the quantitative importance of financial market shocks in accounting for business cycle fluctuations. We emphasize the role financial markets play in reallocating funds from cash-rich, low productivity firms to cash-poor, high productivity firms. We use evidence on financial flows to...

We describe a novel channel through which credit frictions driven by adverse selection problems cause financial shocks to lead to fluctuations in real activity. When firms have private information about their default risk, firms with high probability of default have stronger incentives to run up...