The paper sets out to tackle the following puzzle when insiders of a firm have more information than outside investors. The insiders desire to sell overpriced securities creates an Adverse Selection problem leading to two contradictory results. On the one hand, it leads to Myers & Majluf...

In this paper we explain the apparent diversification discount of conglomerates without assuming inefficent-cross subsidisation through internal capital markets. Instead we assume that an internal capital market efficiently redistributes scare resources across a conglomerates divisions between...

We provide a formal analysis of the notion that conglomerates are more ‘entrenched’ as they have ‘deeper pockets’. Using the financial contracting model of Bolton and Scharfstein (1990), we can isolate two effects that confirm this conjecture: the pooling of cash flows, which allows to...

We examine the relation between optimal venture capital contracts and the supply and demand for venture capital. Both the composition and type of financial claims held by the venture capitalist and entrepreneur depend on the market structure. Beside, different market structures involve different...