Security issuance and price impact under loss aversion

Weining Niu and Qingduo Zeng
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Weining Niu: International School of Business, Beijing International Studies University, Beijing 100024, P. R. China
Qingduo Zeng: School of Economics and Management, Beihang University, Beijing 100191, P. R. China3ESADE Business School, Av. Pedralbes, 60-62, Barcelona 08034, Spain

International Journal of Financial Engineering (IJFE), 2017, vol. 04, issue 02n03, 1-9

Abstract: The paper builds an equilibrium model to analyze the effect of risk aversion, risk seeking and loss aversion on corporate financing choice, capital structure and price impact. It shows that if the probability of a gain is higher than a certain level, risk aversion parameter has a positive relation with capital structure and price impact; while risk seeking parameter has a negative relation with capital structure and price impact, and vice versa. Loss aversion has negative relation with capital structure and price impact. The numerical simulation verifies our findings to some extent.

Keywords: Loss aversion; corporate financing; capital structure; price impact (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1142/S2424786317500360

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