Corporate finance.

• Position: National Bureau on Economic Research forum

The NBER's Program on Corporate Finance met in Cambridge on April 9. Program Director Raghuram Rajan, NBER and University of Chicago, organized the meeting. The program was:

Patrick Bolton and Howard Rosenthal, Princeton University, "Political Intervention in Debt Contracts: Moratoria and Bailouts"

Discussant: Jesus Santos, University of Chicago

Jeremy Berkowitz, Federal Reserve System, and Michelle J. White, University of Michigan, "Bankruptcy and Small Firms' Access to Credit"

Discussant: Mitchell Petersen, Northwestern University

Katrina Ellis, Roni Michaely, and Maureen O'Hara, Cornell University, "When the Underwriter Is the Market Maker: An Examination of Trading in the IPO Aftermarket"

Discussant: Manju Puff, Stanford University

George P. Baker and Brian J. Hall, NBER and Harvard University, "CEO Incentives and Firm Size" (NBER Working Paper No. 6868)

Discussant: Robert Gertner, NBER and University of Chicago

Gustavo Grullon, Rice University, Roni Michealy, and Bhaskaran Swaminathan, Cornell University, "Dividend Changes as a Sign of Firm Maturity"

Discussant: Robert McDonald, Northwestern University

Bolton and Rosenthal develop a simple, dynamic general equilibrium model of an agricultural economy in which poor farmers borrow from rich farmers. The authors allow for both idiosyncratic and aggregate shocks - so there may be default ex post. They consider equilibrium in the economy with and without political intervention, either in the form of a bailout or a moratorium. They then compare their results to historical evidence from the Panic of 1819 in the United States. With no aggregate uncertainty, political intervention always improves ex post efficiency and may also improve ex ante efficiency. Anticipated bailouts, but not moratoriums, will always occur in equilibrium. The threat of moratoriums also enhances efficiency. With aggregate uncertainty, the differences between moratoriums and bailouts may collapse, with both occurring only in bad times and improving ex ante efficiency.

Do personal bankruptcy laws affect small firms' access to credit? When a firm is unincorporated, its debts are personal liabilities of the firm's owner, so lending to that firm is equivalent to lending to its owner. If the firm fails, the owner has an incentive to file for personal bankruptcy. States are allowed to set their own bankruptcy exemption levels, and they vary widely. The higher the exemption level, the more attractive it is for debtors who live...