of the agency costs generated by the existence of debt and outside equity, demonstrate who bears costs and why, and investigate the Pareto optimality of their existence. We also provide a new definition of the firm, and show how our analysis of the factors influencing the creation and issuance of debt

Job Market Paper The paper investigates stock return dynamics in an environment where executives have an incentive to maximize their compensation by artificially inflating earnings. A principal-agent model with financial reporting and managerial effort is embedded in a Lucas asset-pricing model with periodic revelations of the firm’s underlying profitability. The return process generated from the model is consistent with a range of financial anomalies observed in the return data: volatility clustering, asymmetric volatility, and excessive idiosyncratic volatility.

, senior and subordinated bonds, and capital leases. We show that most firms concentrate their borrowing in only one of these debt types, thus indicating a strong tendency towards debt specialization. Moreover, we find that debt specialization persists over time. Small and unrated firms rely exclusively

Association Meetings (Frankfurt), the French Finance Association Meetings (Montpellier), the Northern Finance Association Meetings (Winnipeg), the American Finance Association Meetings (Chicago), and the Midwest Finance Association Meetings (New Orleans) for helpful comments. We thank Milka Dimitrova, Huasheng Gao, and Feng Zhang for excellent research assistance. Colla wishes to thank the Bendheim Center for Finance at Princeton University for its hospitality and support. Li wishes to acknowledge the financial support from the Social Sciences and Humanities Research Council of Canada. All remaining errors are our own.

* We owe a special debt to Daniel Levinthal, who highlighted the complementarity between the evolutionary and

and Dietrich Vollrath and seminar participants at several places. We owe a special debt to Ivan Werning, who was particularly generous with his time and suggestions. We thank Oleg Itshokhi for excellent research assistance. The views expressed herein are those of the author(s) and do

This paper develops a model for the pricing of creditsensitive debt contracts Over the past two decades the debt markets have seen a proliferation of contracts designed to reapportion interest rate and credit risks between issuer and investors Contracts including creditsensitive notes CSNs

I examine the role of debt-financed special payments to shareholders in defending incumbent managements during proxy contests. This role is based on shareholder preference for dividends and the consequent linkage between dividends and managerial security. The model is used to explain why

changes. ∗ We owe a special debt to the creative environments at UC Berkeley’s Computer Science Division and Haas School, where this work was begun. Thanks to David Levine for many comments and for the title. We are grateful

Not time to panic! Total household debt has more than doubled in the last ten years. The largest increase has been in credit card debt, which has increased five-fold in the last ten years.! The household debt to income ratio now stands at 130%. This compares with 102 % in 1993.! Historically low