We provide a theory of informal communication-cheap talk-between firms and capital markets that incorporates the role of agency conflicts between managers and shareholders. The analysis suggests that a policy of discretionary disclosure that encourages managers to attract the market's attention...

This paper explores the incentive effects of a renewal clause in a lease. The basis of selection is rank-order performance. The authors' findings, in the context of a principal-agent model, are as follows. In order to extract greater effort from tenants (i.e., agents), the landlord (the...

This paper studies the possibility of endogenous fluctuations caused by activities of financial intermediaries. Risk-averse agents borrow from banks and invest in a risky two-state capital technology. The probability of success with the technology is assumed to be decreasing in the amount of...

The vast majority of firms in developing economies are micro and small enterprises owned by families whose members also provide the labour to the units. Often, they fail to grow in size even with the relaxation of credit constraints. In this paper, we show that frictions in the labour market...