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Models based on asymmetric information predict that debt is least sensitive to private information and cannot explain the illiquidity of corporate debt in secondary markets. We analyze security design with moral hazard and offer a new explanation. First, the optimal compensation contract creates...
Persistent link: https://www.econbiz.de/10012937695
This paper investigates whether the market level of information asymmetry affects firms’ debt financing decisions. Using a sample of non-financial listed firms and a composite index based on microstructure measures of information asymmetry, we find that firms with more information asymmetry...
Persistent link: https://www.econbiz.de/10011751429
Volume-based liquidity ratios suffer from potential measurement bias due to share restriction and may misrepresent actual liquidity. In this paper, we develop a modified metric, the free-float liquidity ratio. We argue that this measure is better suited to estimate liquidity in the presence of...
Persistent link: https://www.econbiz.de/10013242834
This paper introduces a new form of contingent capital, contingent convertible securities (CCSs), which might repeatedly convert between debt- and equity-like instruments depending on financial conditions. We derive explicit prices of corporate securities, assuming the cash flow is modeled as a...
Persistent link: https://www.econbiz.de/10012974699
We propose a theory of optimal firm financing given nested information problems of adverse selection and agency cost. We prove that there exists a unique perfect Bayesian equilibrium with novel features: First, three types of optimal contracts arise endogenously, i.e., equity, transparent debt...
Persistent link: https://www.econbiz.de/10012547888
A theory of capital structure in which costs associated with asymmetric information are the sole friction is used to present a new perspective on the standard pecking order theory. In the model, both the amount of debt and the restrictiveness of the associated debt covenants are considered to be...
Persistent link: https://www.econbiz.de/10013007928
experiment, we show a tick size increase results in a decline in AT and a sharp drop in absolute cumulative abnormal returns and …
Persistent link: https://www.econbiz.de/10012001245
This paper examines the relationship between firms' innovation activities and the hierarchy of financing behaviours. We analyse the role of innovation inputs (R&D), intermediate outputs (patents) and outcomes (product and process innovations) as sources of information asymmetry in financing...
Persistent link: https://www.econbiz.de/10011919534
How does entrepreneurial financing differ from traditional financing? This study sheds new light on this central question of entrepreneurial finance literature by exploring the distinctive role of soft information in a high-tech start-up’s debt financing. Entrepreneurial investors can obtain...
Persistent link: https://www.econbiz.de/10011991358