We propose a new notion of credibility for Bayesian persuasion problems. A disclosure policy is credible if the sender cannot profit from tampering with her messages while keeping the message distribution unchanged. We show that the credibility of a disclosure policy is equivalent to a cyclical monotonicity condition on the policy’s induced distribution over states and actions. We also characterize how credibility restricts the sender’s ability to persuade under different payoff structures. In particular, when the sender’s payoff is state independent, all disclosure policies are credible. We apply our results to the market for lemons and show that no useful information can be credibly disclosed by the seller.

This study examines how the Chinese state-owned banks allocate loans to private firms. We find that the banks extend loans to financially healthier and better-governed firms, which implies that the banks use commercial judgments in this segment of the market. We also find that having the state as a minority owner helps firms obtain bank loans and this suggests that political connections play a role in gaining access to bank finance. In addition, we find that commercial judgments are important determinants of the lending decisions for manufacturing firms, large firms, and firms located in regions with a more developed banking sector; political connections are important for firms in service industries, large firms, and firms located in areas with a less developed banking sector.

We study the effect of financial market frictions on managerial compensation. We embed a market microstructure model into an otherwise standard contracting framework, and analyze optimal pay-for-performance when managers use information they learn from the market in their investment decisions. In a less frictional market, the improved information content of stock prices helps guide managerial decisions and thereby necessitates lower-powered compensation. Exploiting a randomized experiment, we document evidence that pay-for-performance is lowered in response to reduced market frictions. Firm investment also becomes more sensitive to stock prices during the experiment, consistent with increased managerial learning from the market. (JEL D83, G12, G14, G32, G34, M12, M52)