Pavel Zryumov

We consider a dynamic asymmetric information model where firms face multiple investment opportunities and their capital structure is endogenous at all times. We identify a new economic force (distinct from Myers (1977)) which leads firms to issue short-term debt and subsequently underinvest in growth options. This force, which arises at the optimal mechanism and is time-consistent, generates several new testable predictions. Strikingly, we find that greater retained earnings, or cash, can reduce the investment in positive net present value projects by firms with intermediate credit ratings, and that these firms are the most likely to issue short-term debt.

We examine competition and collaboration between banks and fintech firms in a market with adverse selection. Banks have cheaper funding, while fintechs have better screening technology. Our innovation is to allow the bank to lend to the fintech, i.e., to finance its competitors. This partnership lowers fintech funding costs and reduces bank competition incentives. Lenders collaborate when average borrower quality is low but compete when it’s high. While partnership funding always benefits the fintech, it increases the bank’s profits only when the average borrower quality is low and benefits the borrowers only when the average quality is high.

We study a dynamic problem of selling data without commitment to a budget-constrained receiver. The sender has access to a data-generating process, informative about a fundamental state, and can sell it either as granular observations (raw data) or summary statistics (information). Properly designed, such statistics ensure the residual uncertainty declines predictably along with the receiver's budget, supporting efficiency under gradual information sales. In contrast, selling raw data poses a risk that future observations increase residual uncertainty, exceeding the receiver's remaining budget. Consequently, selling data is inefficient if the fundamental is discrete and requires excess budget if the fundamental is non-Gaussian.

We analyze a class of dynamic games of information exchange between two players. Each agent possesses information about a binary state that is of interest to the other player and cares about the other player's actions. Preferences are additively separable over own and the other player's actions. We fully characterize the set of equilibrium payoffs that can be sustained in such games and construct equilibria that achieve those payoffs. We show that gradual information exchange dominates static (one-shot) communication. Moreover, the whole set of outcomes that Pareto-dominate static communication can be supported in equilibrium.

In this paper I analyze the effect of time-varying market conditions and endogenous entry on equilibrium dynamics of markets plagued by adverse selection. I show that variation in gains from trade, stemming from market conditions, creates an option value and distorts liquidity when current gains from trade are low. An improvement in market conditions triggers a wave of high quality deals due to the preceding illiquidity and lack of incentives to signal quality. When gains from trade are high, the market is fully liquid; high prices and no delay in trade attract low-grade assets, and the average quality deteriorates. My analysis also reveals that illiquidity can act as a remedy as well as a cause of inefficiency: partial illiquidity allows for screening of assets and restores efficient entry incentives. I demonstrate model implications using several applications: early stage financing, initial public offerings, and private equity buyouts.

We reexamine the classic yet static information asymmetry model of Myers and Majluf (1984) in a fully dynamic market. A firm has access to an investment project and can finance it by debt or equity. The market learns the quality of the firm over time by observing cash flows generated by the firm's assets in place. In the dynamic equilibrium, the firm optimally delays investment, but investment eventually takes place. In a "two-threshold" equilibrium, a high-quality firm invests only if the market's belief goes above an optimal upper threshold, while a low-quality firm invests if the market's belief goes above the upper threshold or below a lower threshold. However, a different "four-threshold" equilibrium can emerge if cash flows are sufficiently volatile. Relatively risky growth options are optimally financed with equity, whereas relatively safe projects are financed with debt, in line with stylized facts.