We analyze the interaction between bank and market finance in a model where bankers gather information through monitoring and screening. We show that if a market characterized by a disclosure law is established such that entrepreneurs wishing to raise market finance can credibly disclose their sources of financing, this might undermine bankers' incentive to screen, even when screening is efficient. Correspondingly, other things being equal, the change from a bank-based system to one in which market-finance and bank-finance coexist might have an adverse affect on economic growth. Consistent with this result, our empirical findings suggest that both bank and stock market development have a positive effect on growth, but the growth impact of bank development is lower the higher is the level of stock market development.

We study how regulation shapes the interaction between financial fragility and bank liquidity management, and propose a rationale for the complementarity between bank recovery and resolution planning. To this end, we analyze an economy in which a resolution authority arranges a bank resolution plan to suspend deposit withdrawals and create a “good bank” at a cost in the event of a depositors’ run. In such a framework, banks find it optimal to establish recovery plans in advance, specifying how to manage liquidity during runs. However, such plans are time inconsistent, and resolution authorities need powers to force their implementation at times of financial fragility .

Abstract We study incentive provision in a model of securities issuance with an informed issuer and uninformed investors. We show that the presence of an informed intermediary may increase surplus even if we allow for collusion between the intermediary and the issuer. Collusion is neutralized by introducing a misalignment between the interests of the issuer and those of the intermediary. To achieve this, the intermediary commits to hold some of the securities. The intermediary then underprices the remaining securities and extracts any investor surplus through a “participation fee.” We provide an explanation for the diffusion of book building and quid pro quo practices in Initial Public Offerings (IPOs).

We quantify the signaling effect of trade credit on bank credit in a sample of US firms. Our identification strategy relies on the signaling model by Biais and Gollier (1997) and accounts for the endogeneity due to the possibility of self-selection and the simultaneity between banks’ and firms’ credit decisions. We find that: (i) firms’ self-select into trade credit; (ii) firms’ decision to use trade credit results in a higher chance of obtaining bank credit and a lower cost than the counterfactual ones they would have faced if not using trade credit.