This paper presents a unified theory of debt and outside equity based on specialized valuation of the corporate enterprise. We model the decision of an entrepreneur to use debt and equity finance to get credible information from different specialists about the value of the enterprise in various...

This paper provides a common explanation for a variety of asset financing arrangements that are observed in practice, specifically leasing, secured debt, project finance without recourse, and vendor financing. Such arrangements are viewed as serving to allocate ownership of one or many assets to...

Every equilibrium model of IPO underpricing predicts a positive relationship between ex ante uncertainty about firm value and the extent to which entrepreneurs will issue shares at a discount to their subsequent market value. Since ex ante uncertainty is unobservable, the empirical literature...

We examine the relation between firm value and managerial incentives in a sample of 1,307 publicly-held U.S. firms in 1992-1997. As predicted by Berle and Means (1932), we find that CEOs do not maximize firm value when they are not the residual claimant: our firms have higher Tobin's Q, the...

We model the role various forms of nonrecourse secured debt play in efficiently allocating control rights over assets whose value is state-specific. Ex ante, the entrepreneur makes a noncontractable investment that is specific to the best use of the asset in the status quo, or good, states. The...