Our model of communication belongs to the growing literature on cheap talk games starting from Crawford and Sobel (1982). In contrast to the Crawford-Sobel model in our setting the decision problem is binary not continuous. The fundamental coarseness of a binary decision problem is the principal...

We investigate an IPO security design problem when information asymmetries across investors lead to a winner's curse. Firms that are riskier in down markets can lower the cost of going public by using unit IPOs, in which equity and warrants are combined into a non-divisible package. Furthermore,...

Informational asymmetries between a firm and investors may lead to adverse selection in capital markets. This paper demonstrates that when the market obtains noisy information about a firm over time, this adverse selection problem can be costlessly solved by issuing callable convertible bonds...

Raising cash in multiple stages can lower financing costs for an entrepreneur faced with multiple, differentially informed, strategic investors. By affecting investor incentives to participate in different rounds, the winner's curse problem can be partially alleviated. The results offer insight...