How does short selling affect corporate decisions? To answer this question, we examine corporate investment decisions in a model with short selling. We show that high short selling activities can cause firms to overinvest and the agency problems between managers and shareholders are the driver...

During financial crises, financial market regulators often restrict short-selling to support prices and curb volatility. However, evidence suggests that short-selling bans during the turmoil in financial markets in 2007--2009 failed to achieve regulators' goals. We analyze a model of costly...

Using detailed data about company visits by Chinese mutual funds, we provide direct evidence of mutual fund information acquisition activities and the consequent informational advantages mutual funds establish in local firms. Mutual funds are more likely to visit local and nearby firms, though...

This paper develops a dynamic model of capital structure. It uses the model to determine whether shifts in the demand for capital or shifts in the supply of capital is the key driving force behind capital structure variation over time. Simulations of the model show that adjusting capital...

We develop a production based asset pricing model with financially constrained firms to explain the observed high asset price volatility. Investment opportunities are scarce and firms face two shocks: classic productivity shocks and financial shocks that affect the tightness of the financial...