Paper #1818

Título:

Designing securities for scrutiny

Autores:

Brendan Daley, Brett Green y Victoria Vanasco

Fecha:

Septiembre 2016

Resumen:

We investigate the effect of scrutiny (e.g., credit ratings, analyst reports, or mandatory disclosures) on the security design problem of a privately informed issuer. We show that scrutiny has important implications for both the form of security designed and the amount of inefficient retention of cash flows. The model predicts that issuers will design informationally sensitive securities (i.e., levered equity) when scrutiny is sufficiently intense. Otherwise, issuers opt for a standard debt contract. Scrutiny increases efficiency by decreasing issuers' reliance on retention to signal quality, and perhaps counterintuitively, decrease price informativeness.

Área de investigación:

Macroeconomía y Economía Internacional

Publicado en:

R&R at the Review of Financial Studies

Descargar el paper en formato PDF