Diversification through a financial intermediary has the benefit of transforming loans that need costly monitoring into bank deposits that do not. We show, however, that financial intermediation in a costly state verification model has a cost not yet analyzed: it allows for the existence of...

If financial distress comes with such big costs, why do firms not take further precautionary measures to avoid it? I focus on a specific form of financial distress costs, those associated with asset fire-sales, and show that the contest for monopoly power among firms with financial constraints...

Diversification through a financial intermediary has the benefit of transforming loans that need costly monitoring into bank deposits that do not. We show that financial intermediation in a costly state verification model has a cost not yet analyzed: it allows for the existence of multiple...