We analytically characterize the aggregate productivity loss from allocative distortions in a setting that accounts for the sectoral linkages of production. We show that the effects of distortions and the role of sectoral linkages depend crucially on how substitutable inputs are. We find that...

In a model of dual agency problems where borrower-lenders and bank-nonbank incentives may conflict, we predict a hockey stick relation between bank skin in the game and covenant tightness. As bank participation declines covenant tightness increases until reaching a low threshold, at which point...

This article focuses on financial maintenance covenants as incentive instruments for borrowers under both moral hazard and adverse selection. We explain why maintenance covenants are conditioned on public information. We examine the effect of the firm's incentive to risk-shift, debt amount, and...