It is typically less profitable for an opportunistic borrower to divert inputs than to divert cash. Therefore, suppliers may lend more liberally than banks. This simple argument is at the core of our contract theoretic model of trade credit in competitive markets. The model implies that trade credit and bank credit can be either complements or substitutes depending on, amongst other things, the...

In this paper we argue that foreign direct investment in the transition countries has a dynamic nature, by using firm level data for nine transition countries for the period 1996-2002. Moreover, we differentiate the sectors of activity by the degree of technology involved, using the OECD classification based on technology. By doing this, our empirical model proves that there is some heterogenei...

Recent reforms across Eastern European countries gave more flexibility and information for parties to engage in secured debt transactions, reducing court involvement. The menu of assets legally accepted as collateral was enlarged to include movable assets (e.g., machinery and equipment). Generalized difference-in-differences tests show that firms operating more movable assets borrowed more, inv...

In this work we investigate two crucial dimensions of firms’ structure and dynamics, that is profitability and productivity performance. The empirical distributions and the associated persistence over time are explored through a set of parametric and non parametric exercises performed on an large panel of Italian firms active in both Manufacturing and Services during the period 1998-2003. The m...

Empirical literature on reallocation of resources during business cycles provides an evidence of increased reallocation of labor across firms during downturns. In this paper I build a theoretical model with search frictions in the labor market, that is consistent with this observation, and study implications of search and match frictions for the cross section of stock returns. In the model firm...

This paper addresses the hotly-debated question: do Chinese firms overinvest? A firm-level dataset of 100,000 firms over the period of 2000-07 is employed for this purpose. We initially calculate measures of investment efficiency, which is typically negatively associated with overinvestment. Despite wide disparities across various ownership groups, industries and regions, we find that corporate...

W examine the extent to which employment horizon concerns affect the relative emphasis on financial versus nonfinancial performance measures in annual bonus plans. We argue that managers of loss-making firms are likely to voluntarily or forcibly depart in the near future and, consequently, have a shorter employment horizon. Loss-making firms then need to increase the emphasis on forward-looking...

This paper presents a modeling framework for analyzing competition between multiple firms that each possess a mixture of hydroelectric and thermal generation resources. Based upon the concept of a Cournot oligopoly with a competitive fringe, the model characterizes the Cournot equilibrium conditions of a multiperiod hydrothermal scheduling problem. Using data from the western United States elec...

We report results of a new test of the financing of large and indivisible projects – arguably the focus of most capital structure theory. We develop a filter that identifies investment spikes in a large population of firms. Consistent with the pecking-order theory we find that projects are predominantly financed with debt, particularly in large and profitable firms. However, we reject the hypot...

The 1992 Horizontal Merger Guidelines suggest that the merger of two relatively weak competitors may result in a strong competitor and may lead to lower prices, despite the resulting increase in concentration. This paper introduces incomplete information into a simple model of repeated competition among firms that are asymmetric in their likely degree of efficiency at each stage of competition....