When a debt covenant is violated the lender has the right to demand immediate repayment of the loan. Using this right, the lender can extract certain concessions from the borrower (manager), which may be inefficient. I propose a theory that explains why, despite this inefficiency, tight and often violated debt covenants may be optimal. In a repeated moral hazard problem combined with an incomplete contract set-up, the debt overhang prevents the manager from exercising optimal effort. I deviate from the standard incomplete contract set-up by allowing outside market participants to observe the uncontractable outcome. I model the manager's outside option as the opportunity to refinance his debt on a competitive loan market. In this situation, the market independently evaluates the manager's performance based on observable parameters. The value of the outside option has an important impact on the covenant design. A strict covenant will severely punish the manager if his outside option is low. If the covenant is violated the lender will have control over the manager's assets and the manager will face a renegotiation game in which the lender has all the bargaining power. In this case a high outside option allows the manager to retain some rents. The manager will exercise effort to increase his chances to have a high outside option.

Belarus currently has a relatively generous pay-as-you-go pension system, but population aging coupled with recent problems with economic growth will soon make it unsustainable. We build a rich OLG model of Belarusian economy, which shows that without reform the Pension Fund will run into persistent and growing deficit, which will reach 9 per cent of GDP by 2055. We also compute the fiscal projections of several parametric pension reforms.

The paper analyzes the short-run and long-run effects of imports of intermediate and capital goods on Belarusian economic growth for the period 2005 to 2015 taking into account large upward and downward exchange rate adjustments of Belarusian ruble. The empirical findings from the autoregressive distributed lag regressions indicate that there are negative effects of imports of intermediate goods on economic growth both in the short and long run. Second, contrary to the theory devaluation of the Belarusian ruble negatively influences both GDP growth and imports of intermediate goods in Belarus. Third, the results of Toda–Yamamoto causality test shows that GDP growth Granger causes growth in imports and exports, supporting the hypothesis that trade is more a consequence of the rapid economic growth in Belarus than a cause. Fourth, the findings from forecast error variance decomposition (VDC) confirm results obtained from TY causality test and additionally emphasize that changes in imports in Belarus are mostly driven by changes in exports especially in the long-run. Finally, the findings from VDC also indicate that the main contributor to growth fluctuations are domestic capital investments.

The paper documents stylized facts about Belarusian business cycle based on aggregate and industry data and puts it into an international content. First, the aggregate fluctuations in Belarus are mostly driven by the wedge, which resembles a time-varying investment tax. Second, the fluctuation in relative prices of an industry is typically more important than volume fluctuation. Furthermore, the impact of price fluctuations is partially o@ffset by volume fluctuation. Third, the aggregate cycle is smoother than the industry-specific one. In particular, agriculture, construction and finance experience a very sharp drop in a recession.

Little knowledge exists on difference in innovation behavior of men and women leading the SMEs in transition countries. This paper estimates whether there is a gender gap in SMEs innovation actions. Results show that propensity to innovate is higher among female owners and this finding preserves for 5 measures of innovativeness. Thus, female involvement in business might be beneficial for the innovative sustainable development of economy. Estimation of the gap in performance of implemented innovations did not reveal any strong prevailing gender in terms of efficiency.

We challenge the view that equity market timing always benefits shareholders. By distinguishing the effect of a firm's equity decisions from the effect of mispricing itself, we show that market timing can decrease shareholder value. Additionally, the timing of equity sales has a more negative effect on existing shareholders than the timing of share repurchases. Our theory can be used to infer firms' maximization objectives from their observed market timing strategies. We argue that the popularity of stock buybacks and the low frequency of seasoned equity offerings are consistent with managers maximizing current shareholder value.