In this seminar, Professor Sandro Brusco will present his research paper considering the design of optimal dynamic financing for a firm subject to moral hazard problems.

With respect to the existing literature, he enriches the model by introducing durable capital. The existence of durable capital allows for analysis of the role of firm's size, separately from age and financial structure.

Professor Brusco finds that a higher level of capital decreases the probability of liquidation, increases future size and reduces the average return and volatility on the assets of the firm. Although analytical results are not available, he shows through simulations that the rate of growth of capital is decreasing with size and that the variability of the rate of growth has an inverse U shape, meaning that it first increases with size and eventually it declines. The results are broadly in agreement with the empirical results on the effects of firm size.

This seminar is hosted by Professor Jaideep Roy from the Department of Economics.

Speaker profiles

Sandro Brusco is Professor of Economics in the Department of Economics and the College of Business of Stony Brook University, New York. He conducts research on game theory and mechanism design, looking both at pure theory and applications, especially in corporate finance and political science.

His research appeared in many top-ranked academic journals, including the Review of Economic Studies, the Journal of Finance, the International Economic Review, Games and Economic Behavior and the Journal of Economic Theory.

Accessibility

3 East is accessed through two sets of automatic double doors at the front of the building, reached from North Fire Road and the Parade. There is a set of stairs and a lift available for access to other floors.