Abstract: This paper presents a dynamic model of firm financing where firms use financial slack to reduce rent extraction by financiers possessing bargaining power. Financing is lumpy because it is optimal to bargain infrequently. Moreover, firms may finance ‘early’ before exhausting internal funds to bargain when their outside options are better. Financing rents are thus endogenous to firms' dynamic financing strategy. Firms with good financing alternatives raise financing early to reduce rents, whereas firms lacking such alternatives raise financing after exhausting funds to avoid paying large rents too frequently. Given heterogeneous productivity, investment irreversibility increases average and dispersion of financing rents.

Abstract: This paper develops a model of startup innovation where financing frictions in implementing successful innovations concentrate prior innovation activity. Because funds are more valuable ex-post upon success of innovation than failure, there exists within-firm complementarity ex-ante between innovation and savings. Consequently, startup funds have increasing returns to scale, concentrating innovation towards well-funded startups that additionally raise costly entrepreneurial financing. Non-innovators exhibit perfect inelasticitiy to financing costs – but only locally. Utilizing a model of financing frictions that enables tractable aggregation, I show that time-sensitiveness in implementation increases concentration while ease of `killer acquisitions' decreases it. Concentration is amplified in general equilibrium.