General purpose technologies (GPTs) like AI enable and require significant complementary investments. These investments are often intangible poorly measured in national accounts. We develop a model that shows how this can lead to underestimation of productivity growth new GPTs early years and, later, when the benefits harvested, overestimation. call phenomenon Productivity J-curve. apply our me...

We show that sovereign debt impairments can have a significant impact on financial markets and real economies through a credit ratings channel. Specifically, we find that firms reduce their investment and reliance on credit markets due to a rising cost of debt capital following a sovereign rating downgrade. We identify these effects by exploiting exogenous variation on corporate ratings due to ...

A standard assumption of structural models of default is that firms assets evolve exogenously. In this paper, we document the importance of accounting for investment options in models of credit risk. In the presence of financing and investment frictions, firm-level variables which proxy for asset composition carry explanatory power for credit spreads beyond leverage. As a result, cross-sectiona...

We consider agents as a source of welfare for a principal. The principal provides funds, and the benefits produced are known only to the source. If more productive sources are less risk-averse, the principal offers fixed and variable bundles to screen sources. The analysis reveals that the optimal lottery achieves great target efficiency. Indeed, when the ratio of marginal benefits approaches z...

As the dependence structure (i.e. the copula) among the assets is ...xed, one might think that the riskier the assets, the riskier the portfolio. Surprisingly enough, this conjecture turns out to be false even for coherent risk measures and normal returns. We show that two conditions are able to preserve risk ordering under the portfolio: convexity for the risk measure and conditional increasin...

This paper investigates a principal-agent model in which an owner (principal) optimizes a contract with a manager (agent) delegated to undertake an investment project. In the model, we explore the effects of costly exploration by which the manager learns the real value of development cost. We show that high exploration cost can lead to a pooling policy not contingent on project type. Further, a...

We investigate how borrowers’ corporate governance influences bank loan contracting terms in emerging markets and how this relation varies across countries with different country-level governance. We find that borrowers with stronger corporate governance obtain favorable contracting terms with respect to loan amount, maturity, collateral requirements, and spread. Firm-level and country-level co...

Article history: Received 11 May 2012 Received in revised form 17 July 2013 Accepted 8 November 2013 Available online 18 November 2013 Market effects on corporate investment are well documented. Low disagreement implies high investment, but we know little about what high disagreement implies, other than the implied flip side (low investment). This paper adds to this literature in several ways. ...

This paper tests empirically the hypothesis that the greater the intangibility of a firm’s resources, the greater the sustainability of its competitive advantage. Resource intangibility is measured by: (1) Tobin’s q and (2) the predicted value from a hedonic regression of q on several accounting measures of intangibles. Sustainability is measured by the persistence of firm-specific profits. Usi...

This study examines whether firms issue capital expenditure forecasts as a commitment to not engage in expropriation of lenders through opportunistic investment activities. We find that firms with higher leverage and lower credit quality are more likely to issue capital expenditure forecasts and deviate less from the forecasts. Furthermore, for firms that issue capital expenditure forecasts, lo...