The existing literature on law and finance generally assumes that firms are passive recipients of the influence of investor protections on their ability to raise external financing. In this paper, we empirically identify a commitment mechanism, i.e., dividend payouts, which firms use to establish a reputation for better treatment of outside shareholders in order to compensate for country-level ...

In a multi-industry growth model, firms require external funds to conduct productivityenhancing R&D, and face financing constraints. The cost of research differs across industries, so that financing constraints hinder productivity growth in some industries more than in others. Equilibrium industry dynamics map into a differences-indifferences regression specification where industry growth depen...

We characterize the optimal long-term financial contract in a setting in which a risk-neutral agent with limited capital seeks external financing for a project which pays stochastic cash flows over many periods. These cash flows are unobservable and unverifiable by outside investors. The agent can be induced to pay investors via the threat of the loss of control of the project. After solving fo...

The paper offers a straightforward method for estimating R&D portfolios that maximize shareholders’ utility. R&D portfolios are generally associated with high returns and high risks. As such, an impressive body of literature has highlighted the risks linked with R&D portfolio allocations. Nevertheless, the role of financing strategies in portfolio allocation has been neglected, and this provide...

The article examines the impact of cash flow on need to increase funding in Covid pandemic context and financial constraints listed companies Vietnam. We build hypotheses b ased self-ranking match theory framework research overview. use data from 5894 observations for 2010-2020 general regression model - GLS test expected hypotheses. results show that significantly influences external financing...

We extend the theoretical model of external corporate financing to the case when the buyers of the borrowing firm may default during the financing period. In our setup there is an asymmetric information and hence moral hazard between the lender and the borrower concerning the effrts of the borrower. We define the optimal debt contract in two cases. In the symmetric case the lender and the borro...

The early models of Islamic banks are based on partnership of mudharaba and musharaka (profit-loss sharing) structure. Such equitybased financing are perceived to be superior to conventional financing from the standpoint of robustness to external shocks and from the standpoint of ethics, fairness and social justice. Where profit-loss sharing mechanisms cannot be used, Islamic banks provide othe...

We quantify the cost of limited liability rules in a traditional model of investment financing under moral hazard and risk aversion. Under limited liability, we show that external debt and the granting of absolute priority to debtholders are key (but not the unique) ingredients of the optimal financing package. Removing liability limits makes possible a superior contract that punishes the entre...

prices? As it stands, the theorem provides an important benchmark and enforces careful thinking about financial markets’ workings and the imperfections that would create a world where a firm’s financial position (hence equity prices) affects its ability to engage in production. Many possible imperfections could generate such a world. This article focuses on failures of information. Suppose that...

We examine firm valuation with optimal liquidity (retained earnings) and dividend choice under revenue uncertainty that incorporates debt financing and bankruptcy costs. We revisit the conditions for dividend policy irrelevancy and the role of retained earnings and dividends. Retained earnings have a net positive impact on firm value in the presence of growth options, high external financing co...