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Peer Reviewed ; This paper studies a model of endogenous bank opacity. Why do banks choose to hide their risk exposure from the public? And should policy makers force banks to be more transparent? In the model, bank opacity is costly because it encourages banks to take on too much risk. But opacity also reduces the incidence of bank runs (for a given level of risk taking). Banks choose to be inefficiently opaque if the composition of their asset holdings is proprietary information. In this case, policy makers can improve upon the market outcome by imposing public disclosure requirements (such as Pillar Three of Basel II). However, full transparency maximizes neither efficiency nor stability. The model can explain why empirically a higher degree of bank competition leads to increased transparency. I am grateful for financial support from the European Union through ADEMU (Horizon 2020 Grant 649396) and ERC Advanced Grant (APMPAL) GA 324048, from the Spanish Ministry of Economy and Competitiveness through the Severo Ochoa Programme for Centres of Excellence in R&D (SEV-2015-0563) and through Grant ECO2013-48884-C3-1P, and from the Generalitat de Catalunya (Grant 2014 SGR 1432).

Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properly attributed. ; This paper studies a model of endogenous bank opacity. In the model, bank opacity is costly for society because it reduces market discipline and encourages banks to take on too much risk. This is true even in the absence of agency problems between banks and the ultimate bearers of the risk. Banks choose to be inefficiently opaque if the composition of a bank's balance sheet is proprietary information. Strategic behavior reduces transparency and increases the risk of a banking crisis. The model can explain why empirically a higher degree of bank competition leads to increased transparency. Optimal public disclosure requirements may make banks more vulnerable to a run for a given investment policy, but they reduce the risk of a run through an improvement in market discipline. The option of public stress tests is beneficial if the policy maker has access to public information only. This option can be harmful if the policy maker has access to banks' private information. ; The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.

We introduce long-term debt (and a maturity choice) into a standard model of firm financing and investment. This allows us to study two distortions of investment: (1.) Debt dilution distorts firms' choice of debt which has an indirect effect on investment; (2.) Debt overhang directly distorts investment. In a dynamic model of investment, leverage, and debt maturity, we show that the two frictions interact to reduce investment, increase leverage, and increase the default rate. We provide empirical evidence from U.S. firms that is consistent with the model predictions. Using our model, we isolate and quantify the effect of debt dilution and debt overhang. Debt dilution is more important for firm value than debt overhang. Debt overhang can actually increase firm value by reducing debt dilution. The negative effect of debt dilution on investment is about half as strong as that of debt overhang. Eliminating the two distortions leads to an increase in investment equivalent to a reduction in the corporate income tax of 3.5 percentage points. ; The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.

Trabajo presentado en el ADEMU Summer School celebrado en Toulousse, los días 19 y 20 de junio de 2017.-- ; Trabajo presentado en el EUI Macro Working Group, organizado por el Departamento de Económicas del European University Institute (Italia), el 16 de febrero de 2017 ; This paper introduces a maturity choice to the standard model of firm financing and investment. Long-term debt renders the optimal firm policy time-inconsistent. Lack of commitment gives rise to debt dilution. This problem becomes more severe during downturns. We show that cyclical debt dilution generates the observed counter-cyclical behavior of default, bond spreads, leverage, and debt maturity. It also generates the pro-cyclical term structure of corporate bond spreads. Debt dilution renders the equilibrium outcome constrained-inefficient: credit spreads are too high and investment is too low. In two policy experiments we find the following: (1) an outright ban of long-term debt improves welfare in our model economy, and (2.) debt dilution accounts for 84% of the credit spread and 25% of the welfare gap with respect to the first best allocation. ; Joachim Jungherr is grateful for financial support from the ADEMU project funded by the European Union (Horizon 2020 Grant 649396), from the Spanish Ministry of Economy and Competitiveness through the Severo Ochoa Programme for Centres of Excellence in R&D (SEV-2015-0563) and through Grant ECO2013-48884-C3-1P, and from the Generalitat de Catalunya (Grant 2014 SGR 1432). ; Peer reviewed

Trabajo presentado en el EEA-ESEM: (31 Annual Congress of the European Economic Association & 69th European Meeting of the Econometric Society) celebrado en Genova del 22 al 26 de agosto de 2016 ; We develop a model of financial frictions to study optimal competition policy of a benevolent government. Limited competition has two effects in our model. First, it generates the standard static deadweight-loss which is beared exclusively by the workers as firms hire a less then efficient amount of labor due to the impact of labor demand on wages. Second, it leads to an increase in firms' profits and next period wealth. Therefore, employed capital raises due to financial frictions and complementarities between capital and labor lead to dynamic gains for workers. We show that in early stages of development the dynamic gains always outweigh the static losses for workers. Thus, a government will always choose to limit competition in early stages of development, independently of the relative weight it assigns to worker utility. We then calibrate our model to the korean economy to analyze whether the korean politics in the 1960s which reduced competition to favor the so-called "Chaebol" (Hyundai, Samsung, etc.) was in line with optimal policy. ; No