Impact of heterogeneous beliefs and short sale constraints on security issuance decisions

Yahua Wang, Feng Xu and Angang Hu

Economic Modelling, 2013, vol. 30, issue C, 539-545

Abstract: Extant literatures discuss a firm's security issuance implications of heterogeneous beliefs with explicit assumption that short selling is forbidden. However, it is widely accepted that short sale constraints exist when investors are unable to short stock to the extent they desire. This paper presents a model to analyze how heterogeneous beliefs and short sale constraint conditions jointly affect a firm's security issuance decision. The main findings are: i) An increase in heterogeneity in investors' beliefs results in an increased likelihood of equity issuance over debt when public signal is favorable, whereas it results in a reduced likelihood when public signal is modestly adverse. ii) The tightness of short sale constraints has a positive effect on the likelihood of equity issuance only when public signal is highly favorable. These results indicate widely divergent conclusions about the relations between heterogeneous beliefs as well as short sale constraints and security issuance decision.

Keywords: Financing policy; Behavioral finance; Heterogeneous beliefs; Short sale constraints; Security issuance; Stock bubble (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264999312003264
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:30:y:2013:i:c:p:539-545

DOI: 10.1016/j.econmod.2012.09.051

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().