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Security design with investor private information

Axelson, Ulf (2007) Security design with investor private information. The Journal of Finance, 6 (6). pp. 2587-2632. ISSN 0022-1082

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Abstract

I study the security design problem of a firm when investors rather than managers have private information about the firm. I find that it is often optimal to issue information-sensitive securities such as equity. The "folklore proposition of debt" from traditional signaling models only goes through if the firm can vary the face value of debt with investor demand. When the firm has several assets, debt backed by a pool of assets is optimal when the degree of competition among investors is low, while equity backed by individual assets is optimal when competition is high.

Item Type: Article
Official URL: http://www.afajof.org/
Additional Information: © 2007 American Finance Association
Library of Congress subject classification: H Social Sciences > HG Finance
Sets: Departments > Finance
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 09 Nov 2011 16:07
URL: http://eprints.lse.ac.uk/39369/

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