Peter M. DeMarzo

Graduate School of Business
Stanford University
Stanford, CA 94305
Tel: 650/736-1082
Fax: 650/725-3716

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org
NBER Program Affiliations: AP , CF
NBER Affiliation: Research Associate
Institutional Affiliation: Stanford University

NBER Working Papers and Publications

November 2016Leverage Dynamics without Commitment
with Zhiguo He: w22799
We analyze equilibrium leverage dynamics in a dynamic tradeoff model when the firm is unable to commit to a leverage policy ex ante. We develop a methodology to characterize equilibrium equity and debt prices in a general jump-diffusion framework, and apply our approach to the standard Leland (1998) setting. Absent commitment, the leverage ratchet effect (Admati et al. 2015) distorts capital structure decisions, leading shareholders to take on debt gradually over time and never voluntarily reduce debt. On the other hand, countervailing effects of asset growth and debt maturity cause leverage to mean-revert towards a long run target. In equilibrium, bond investors anticipate future leverage increases and require significant credit spreads even when the distance to default is large. As a res...
October 2010Endogenous Information Flows and the Clustering of Announcements
with Viral V. Acharya, Ilan Kremer: w16485
We consider the strategic timing of information releases in a dynamic disclosure model. Because investors don't know whether or when the firm is informed, the firm will not necessarily disclose immediately. We show that bad market news can trigger the immediate release of information by firms. Conversely, good market news slows the release of information by firms. Thus, our model generates clustering of negative announcements. Surprisingly, this result holds only when firms can preemptively disclose their own information prior to the arrival of external information. These results have implications for conditional variance and skewness of stock returns.

Published: Viral V. Acharya & Peter DeMarzo & Ilan Kremer, 2011. "Endogenous Information Flows and the Clustering of Announcements," American Economic Review, American Economic Association, vol. 101(7), pages 2955-79, December. citation courtesy of

November 2004Bidding With Securities: Auctions and Security Design
with Ilan Kremer, Andrzej Skrzypacz: w10891
We study security-bid auctions in which bidders compete by bidding with securities whose payments are contingent on the realized value of the asset being sold. Such auctions are commonly used, both formally and informally. In formal auctions, the seller restricts bids to an ordered set, such as an equity share or royalty rate, and commits to a format, such as first or second-price. In informal settings with competing buyers, the seller does not commit to a mechanism upfront. Rather, bidders offer securities and the seller chooses the most attractive bid, based on his beliefs, ex-post. We characterize equilibrium payoffs and bidding strategies for formal and informal auctions. For formal auctions, we examine the impact of both the security design and the auction format. We define a notion...

Published: DeMarzo, Peter M., Ilan Kremer and Andrzej Skrzypacz. "Bidding With Securities: Auctions And Security Design," American Economic Review, 2005, v95(4,Sep), 936-959. citation courtesy of

July 2004A Continuous-Time Agency Model of Optimal Contracting and Capital Structure
with Yuliy Sannikov: w10615
We consider a principal-agent model in which the agent needs to raise capital from the principal to finance a project. Our model is based on DeMarzo and Fishman (2003), except that the agent's cash flows are given by a Brownian motion with drift in continuous time. The difficulty in writing an appropriate financial contract in this setting is that the agent can conceal and divert cash flows for his own consumption rather than pay back the principal. Alternatively, the agent may reduce the mean of cash flows by not putting in effort. To give the agent incentives to provide effort and repay the principal, a long-term contract specifies the agent's wage and can force termination of the project. Using techniques from stochastic calculus similar to Sannikov (2003), we characterize the optimal c...
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