Optimal Leverage and Strategic Disclosure

Giulio Trigilia
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Giulio Trigilia: Department of Economics, University of Warwick

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: Firms seeking external financing jointly choose what securities to issue, and the extent of their disclosure commitments. The literature shows that enhanced disclosure reduces the cost of financing. This paper analyses how disclosure affects the optimal composition of financing means. It considers a market where firms compete for external financing under costly-state-verification, but, in contrast to the standard model: (i) the degree of asymmetric information between firms and outside investors is variable, and (ii) firms can affect it through a disclosure policy, modeled as a verifiable signal with a cost decreasing in its noise component. Two central predictions emerge.

Keywords: leverage; costly-state-verification; disclosure; asymmetric information; capital requirements; financial regulation; optimal contracting (search for similar items in EconPapers)
JEL-codes: D82 G21 G32 G38 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-cfn and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:1111

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