Asymmetric information, credit market and the optimal regulation of brand market

Bo Wang and Suli Zheng

Finance Research Letters, 2023, vol. 56, issue C

Abstract: This paper studies the regulation of the brand market conceptualised as the merger & acquisition(M&A) market. By introducing a brand market into an endogenous growth model in which an informational asymmetry exists between capital-producing borrowers and lenders, we show a brand market screens the borrowers at the expense of crowding out real investment. The optimal brand price trades off the screening effect and the crowding out effect. The social planner could levy a reimbursement tax to achieve the optimal brand price. Capital income tax may be allowed to subsidise the brand purchase to activate the brand market.

Keywords: Asymmetric information; Brand market; Reimbursement tax (search for similar items in EconPapers)
JEL-codes: E60 G38 O38 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:56:y:2023:i:c:s1544612323004269

DOI: 10.1016/j.frl.2023.104054

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