Capital Flows with Debt- and Equity-Financed Investment-Equilibrium Structure and Efficiency Implications

Assaf Razin, Chi-Wa Yuen and Efraim Sadka

No 1998/159, IMF Working Papers from International Monetary Fund

Abstract: This paper distinguishes between debt and equity flows in the presence of information asymmetry between the firm’s “insiders” and “outsiders” in a small open economy. It shows the inadequacy of capital investment because its scope is too narrow and the investment each firm makes is too little. An unconventional policy tool is proposed to correct the market failure: lump-sum subsidies to firms that choose to equity-finance their investments.

Keywords: WP; market value; debt market; firm (search for similar items in EconPapers)
Pages: 21
Date: 1998-11-01
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Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Capital Flows with Debt-And Equity-Financed Invesment: Equilibrium Structure and Efficiency Implications (1998)
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Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:1998/159

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