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Smart buyers

Burkart, Mike ORCID: 0000-0002-0954-4499 and Lee, Samuel (2016) Smart buyers. Review of Corporate Finance Studies, 5 (2). 239 - 270. ISSN 2046-9128

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Identification Number: 10.1093/rcfs/cfw004


We study transactions in which sellers fear being underpaid because their outside option is better known to the buyer. We rationalize various observed contracts as solutions to such smart buyer problems. Key to these solutions is granting the seller upside participation. In contrast, the lemons problem calls for granting the buyer downside protection. But, in either case, the seller (buyer) receives a convex (concave) claim. Thus, contracts usually associated with the lemons problem, such as debt or cash-equity offers, can be equally well manifestations of the smart buyer problem, although the two information asymmetries have opposite cross-sectional implications.

Item Type: Article
Official URL:
Additional Information: © 2016 The Author
Divisions: Finance
Subjects: H Social Sciences > HG Finance
H Social Sciences > HJ Public Finance
Date Deposited: 22 Feb 2017 09:34
Last Modified: 20 Oct 2021 00:53

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