Security Design with Investor Private Information

Ulf Axelson ()
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Ulf Axelson: Swedish Institute for Financial Research, Postal: Saltmätargatan 19A, SE-113 59 Stockholm, Sweden, http://www.sifr.org

No 37, SIFR Research Report Series from Institute for Financial Research

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 like equity. The "folklore proposition of debt" from traditional signalling 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 can be optimal when competition is high.

Keywords: Security design; Capital Structure; Auctions; Asset backed securities (search for similar items in EconPapers)
JEL-codes: D44 G32 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2005-10-15
New Economics Papers: this item is included in nep-fin and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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