Bernhardt, Dan, Koufopoulos, Kostas and Trigilia, Giulio (2022) Separating equilibria, underpricing and security design. Journal of Financial Economics. pp. 788-801. ISSN 0304-405X
Abstract
Classical security design papers equate competitive capital markets to securities being fairly priced in expectation. We revisit Nachman and Noe (1994)'s adverse- selection setting, modeling capital-market competition as free entry of investors and allowing firms to propose prices for their securities, as happens in private securities placements and bank lending. We identify equilibria in which high types issue underpriced debt, which yields positive expected prots to uninformed lenders, while low types issue steeper securities, such as equity. In addition, pooling equilibria exist in which firms issue underpriced debt. Introducing pre-existing capital structures provides further foundations for pecking-order theories of external finance.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © 2021 Elsevier B.V. This is an author-produced version of the published paper. Uploaded in accordance with the publisher’s self-archiving policy. |
Dates: |
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Institution: | The University of York |
Academic Units: | The University of York > Faculty of Social Sciences (York) > Economics and Related Studies (York) |
Depositing User: | Pure (York) |
Date Deposited: | 29 Jul 2021 11:30 |
Last Modified: | 02 Apr 2025 23:22 |
Published Version: | https://doi.org/10.1016/j.jfineco.2021.08.021 |
Status: | Published |
Refereed: | Yes |
Identification Number: | 10.1016/j.jfineco.2021.08.021 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:176647 |
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Filename: Separating_equilibria_under_pricing_and_security_design_JFE_Accepted_Version_22_07_2021_.pdf
Description: Separating equilibria, under-pricing and security design (JFE Accepted Version, 22-07-2021)
Licence: CC-BY-NC-ND 2.5