We test the predictions of several recent theories of how bank capital affects the rates that banks charge their borrowers. Consistent with previous studies, higher bank capital has a negative impact on loan rates, and this effect is focused on bank-dependent borrowers. Further investigation...

The savings/investment process in capitalist economies is organized around financial intermediation, making them a central institution of economic growth. Financial intermediaries are firms that borrow from consumer/savers and lend to companies that need resources for investment. In contrast, in...

We estimate a structural model of bank portfolio lending and find that the typical U.S. community bank reduced its business lending during the global financial crisis. The decline in business credit was driven by increased risk overhang effects (consistent with a reduction in the liquidity of...

In a dynamic model of originate-to-distribute lending, we examine whether reputation concerns can incentivize a bank to monitor loans it has sold. Investors believe that banks with fewer recent loan defaults are more likely to monitor ("have higher reputation''). In equilibrium, banks monitor...

We examine how a firm's incentive to commit fraud when going public varies with investor beliefs about industry business conditions. Fraud propensity increases with the level of investor beliefs about industry prospects but decreases in the presence of extremely high beliefs. Evidence suggests...

Because many financial institutions rely heavily on debt finance and have great flexibility in their choice of investments, they may be tempted to exploit debt holders by taking on inefficient but risky investments. Consider a two-subsidiary (quot;bipartitequot;) structure in which one...

We show that exposure from past business transactions--risk overhang--can reduce activity in related business lines, sometimes to the point where no new trade occurs. Our primary focus is the role of overhang in nonlife insurance market disruptions. Our model predicts that the relative impact,...

Should lenders diversify, as suggested by the intermediation literature, or specialize, as suggested by the corporate finance literature? I model a financial institution's (quot;bank'squot;) choice between these two strategies in a setting where bank failure is costly and loan monitoring adds...