[When a firm is in financial distress, in most cases a set of mutually advantageous reorganization plans exist. This article shows that the bankruptcy code, by providing rules governing the negotiation process, yields a unique solution to the reorganization process. In addition, the structure imposed by the code mitigates the holdout problem created by the individual claimant's divergent incentives.]

When a firm is in financial distress, in most cases a set of mutually advantageous reorganization plans exist. This article shows that the bankruptcy code, by providing rules governing the negotiation process, yields a unique solution to the reorganization process. In addition, the structure imposed by the code mitigates the holdout problem created by the individual claimant's divergent incentives.

[Technical analysis, or the use of past prices to infer private information, has value in a model in which prices are not fully revealing and traders have rational conjectures about the relation between prices and signals. A two-period dynamic model of equilibrium is used to demonstrate that rational investors use historical prices in forming their demands and to illustrate the sensitivity of the value of technical analysis to changes in the values of the exogenous parameters.]

We analyze a financially distressed owner-managed project. The main results of the model are: (1) borrower default is an endogenous response to the anticipated restructuring–foreclosure outcome; (2) the lender’s restructuring–foreclosure decision depends critically on the interaction between project value and industry liquidity; and (3) the lender waits for the industry to recapitalize before selling assets obtained through foreclosure. Empirical analysis of a large sample of defaulted commercial real estate loans supports many of the model predictions, including restructuring–foreclosure outcomes that are consistent with endogenous borrower default and firesale discounts that vary depending on industry market conditions at the time of foreclosure.

We analyze a financially distressed owner-managed project. The main results of the model are: (1) borrower default is an endogenous response to the anticipated restructuring-foreclosure outcome; (2) the lender's restructuring-foreclosure decision depends critically on the interaction between project value and industry liquidity; and (3) the lender waits for the industry to recapitalize before selling assets obtained through foreclosure. Empirical analysis of a large sample of defaulted commercial real estate loans supports many of the model predictions, including restructuring-foreclosure outcomes that are consistent with endogenous borrower default and firesale discounts that vary depending on industry market conditions at the time of foreclosure.

Technical analysis, or the use of past prices to infer private information, has value in a model in which prices are not fully revealing and traders have rational conjectures about the relation between prices and signals. A two-period dynamic model of equilibrium is used to demonstrate that rational investors use historical prices in forming their demands and to illustrate the sensitivity of the value of technical analysis to changes in the values of the exogenous parameters.

This paper examines how employee earnings respond to a one-time cash flow shock in the form of a government R&D grant. In a regression discontinuity design, we find that the grant immediately increases average annual employee-level earnings by 2.9%. This benefit accrues only to incumbent employees and rises with job tenure. The grant also affects firm growth, but the initial wage patterns do not appear to reflect growth or productivity. Instead, the evidence supports implicit equity financing within the firm, where employees initially accept lower wages from financially constrained firms and earn more when the firm has ability to pay.

We analyze early-venture fundraising from dispersed, endogenously informed investors. An entrepreneur chooses a payoff-maximizing offering, and investors communicate their information by either contributing capital or abstaining. The entrepreneur uses the information conveyed by fundraising amounts to decide whether or not to undertake a risky venture. His decision threshold hedges investors against bad projects, creating a “loser’s blessing” that encourages contributing without information. Making the offering less attractive to investors mitigates the loser’s blessing but can give rise to a winner’s curse. Both tensions reduce financing efficiency.