Borrowers obtain liquidity by issuing securities backed by the current period payoff and resale price of a long-lived collateral asset, and they are privately informed about the payoff distribution. Asset price can be self-fulfilling: a higher asset price lowers adverse selection and allows borrowers to raise greater funding, which makes the asset more valuable, leading to multiple equilibria. Optimal security design eliminates multiple equilibria, improves welfare, and can be implemented as a repo contract. Persistent adverse selection lowers debt funding, generates volatility in asset prices, and exacerbates credit crunches. The theory demonstrates the role of asset-backed securities on stability of market-based financial systems.

Our work builds on network theory to investigate the role of alliance networks in international acquisition premiums. On the one hand, we postulate that an international acquirer’s network centrality in the target country lowers the inclination of offering higher bid premiums associated with its liability of foreignness (i.e., negatively moderates the relation between foreignness and premiums). On the other hand, we provide a perspective that a target firm’s local network centrality increases an international acquirer’s willingness to pay higher premiums in order to gain access to unique and valuable local knowledge and resources (i.e., positively moderates the relationship between foreignness and premiums). To test our hypotheses, we analyzed a sample of 1693 related acquisition bids made in more than 40 countries between 2008 and 2017. Our findings support our dual perspective on the role of networks and demonstrate that the acquirer's networks and the target's networks have distinct influences on the relat

Real-world contractual agreements between firms are often incomplete, leading to suboptimal investment and loss of value in supply chain relationships. To what extent can blockchain technology help alleviate problems arising from contractual incompleteness? We examine this issue by exploiting a quasi-natural experiment based on the staggered adoption of U.S. state laws that increased firms’ in-state ability to develop, adopt, and use blockchain technology. We find that, after exposure to a pro-blockchain law, firms with greater asset specificity exhibit more positive changes to Tobin’s Q, research and development, and blockchain-related innovation. Also, such firms appear to rely less on vertical integration, form more strategic alliances, and shift their emphasis to less geographically proximate customers. Overall, our results suggest that blockchain technology can help firms remedy constraints and inefficiencies arising from contractual incompleteness.

We identify many major U.S. corporations that are highly exposed to inflation risk. Yet, although the SEC legally requires disclosing possible risk factors, more than 61% of the inflation-exposed corporations do not disclose inflation risk. However, after being sued in a securities class action lawsuit, while all firms increase the length of their reported risk factor texts, only inflation-exposed firms are more likely to begin disclosing inflation risk. Simulations using calibrated parameters from our models reveal that 2%–6% inflation shocks over the subsequent three years result in market cap damages of $0.9 to $2.8 trillion for shareholders of inflation-exposed firms that never disclosed this risk. The inadequate inflation risk disclosure holds after allowing risk to be time varying, controlling for firm/industry characteristics, and/or exploiting a quasi-natural experiment that identifies causal effects and controls for possible unobservable factors. The evidence is consistent with corporate managers pay

I study optimal information provision by a search goods seller. While the seller controls a consumer's pre-search information, he cannot control post-search information because the consumer will inevitably learn the product's match after search. A relaxed problem approach is developed to solve the optimal design, which accommodates both continuous value distributions and ex-ante heterogeneous consumers with privately known outside options. The optimal design is shown to crucially depend on the outside option value distribution, and can be implemented by a simple upper-censorship signal under certain regularity conditions. Several applications are provided, including comparing information designs for search goods and experience goods, and studying the effect of competition with a large number of sellers.

Although cross-border acquisitions (CBAs) are prevalent, many such acquisitions fail to complete. This challenge is even more profound for emerging market MNEs (EMNEs). Drawing upon the vicarious learning theory, we argue that EMNEs can learn from inbound foreign acquirers through the latter’s demonstration, professional services firms, and employees. This learning mechanism enables EMNEs to better deal with the complexity and uncertainty in various stages of acquiring foreign firms, thus increasing the completion rate of their outbound CBAs. We also suggest that the effectiveness of vicarious learning is further enhanced by the relatedness between inbound and outbound CBAs. Our analysis of 3599 outbound CBAs from 27 emerging economies during 2000–2018 shows that prior inbound CBAs completed in an emerging economy have a positive effect on the completion likelihood of outbound CBAs conducted by EMNEs from this economy. This positive effect becomes even stronger when the percentage of (1) inbound CBAs served b

Signs of the gender gap are ubiquitous in society. Psychological theory suggests that, when gender stereotypes are associated with competition, men exert greater effort against women (dominance effect) and women exert less effort against men (submissive effect), which implies that women are at a disadvantage when competing against men. Although multiple factors contribute to the gender gap, attempts to identify these factors are hampered because gender, as a personal trait, is difficult to manipulate. Herein, the authors investigate submissive and dominance effects in the context of an online video game. They exploit a unique feature of the data: players have two-dimensional gender identities, one birth and one virtual. The results provide support for the dominance but not the submissive effect: when men perceive their opponent as female, they exert increased effort in competition, but women seem unaffected by their opponent’s gender, which leads to poorer performance for women when competing against men unle

The literature offers two interpretations of competitive search equilibrium, one based on a Nash approach and the other on a market-maker approach. When each buyer visits only one seller, the two approaches are equivalent. However, when each buyer visits multiple sellers, this equivalence can break down. We present a model in which every buyer visits 2 sellers. A buyer who trades with one seller receives a value of s, while a buyer who trades with 2 sellers receives value 1. Letting s vary from 0 (perfect complements) to 1 (perfect substitutes) we characterize the competitive search equilibrium under the two interpretations. We show that for low values of s, the Nash and market-maker competitive search equilibria coincide, but the common equilibrium is inefficient. For intermediate values of s, the two equilibria again coincide and are efficient. Finally, for high values of s, the Nash and market-maker equilibria differ, and only the latter is efficient.

Irrigation provides insurance against aggregate weather shocks, which can interact with other institutions functioning in village communities. I study this relationship in a model of joint co-operation over irrigation and risk sharing under limited commitment. The model dynamics show that if access to irrigation can be regulated by villagers, the two institutions reinforce each other. However, non-excludable irrigation crowds out risk sharing (as is the case with government-managed irrigation). I estimate the framework on data from three villages in India and use it to quantify the relationship between informal insurance and irrigation, and the welfare impact of irrigation public policy.

Problem definition: This paper studies an entrepreneur’s pricing strategy in a reward-based crowdfunding campaign under asymmetric product quality information. We propose two signaling mechanisms and investigate how entrepreneurs can leverage their pricing strategy to signal a high-quality project. Academic/practical relevance: This problem is relevant to practice, as asymmetric quality information is a significant concern in reward-based crowdfunding. High-quality entrepreneurs seek credible mechanisms to signal the quality of projects to customers. Methodology: We develop a stylized game-theoretic signaling model with funding and regular selling periods that captures asymmetric quality information between an entrepreneur and customers. Results: We propose a new theory on quality signaling in crowdfunding. We show that contingent access to the regular selling market after running a successful crowdfunding campaign allows high-quality entrepreneurs to signal their quality through low funding prices (one-price