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Article: Debt- and Equity-Financed Investment: Equilibrium Structure and Efficiency Implications

TitleDebt- and Equity-Financed Investment: Equilibrium Structure and Efficiency Implications
Authors
Issue Date2001
PublisherMohr Siebeck. The Journal's web site is located at http://www.mohr.de/fa.html
Citation
Finanzarchiv, 2001, v. 57 n. 4, p. 361-375 How to Cite?
AbstractThis paper considers the financing of investment in the presence of information asymmetry between 'insiders' and 'outsiders' of the firms. It establishes a well-defined capital structure for the economy as a whole with the following features: low-productivity firms rely on the equity market to finance investment at a relatively low level; mediumproductivity firms may not invest at all; and high-productivity firms rely on the debt market to finance investment at a relatively high level. It is shown that the debt market is efficient, with respect to the scope and the amount of investment made by each firm. However, the equity market fails: its scope is too narrow and the amount of investment each firm makes is too little. A unique but rather unconventional policy tool is proposed to achieve constrained Pareto-efficiency, i.e., subsidies to those firms that choose to equity-finance their investment (i.e., equity-marketcontingent grants).
Persistent Identifierhttp://hdl.handle.net/10722/85663
ISSN
2015 Impact Factor: 0.311
2015 SCImago Journal Rankings: 0.254

 

DC FieldValueLanguage
dc.contributor.authorRazin, Aen_HK
dc.contributor.authorSadka, Een_HK
dc.contributor.authorYuen, CWen_HK
dc.date.accessioned2010-09-06T09:07:45Z-
dc.date.available2010-09-06T09:07:45Z-
dc.date.issued2001en_HK
dc.identifier.citationFinanzarchiv, 2001, v. 57 n. 4, p. 361-375en_HK
dc.identifier.issn0015-2218en_HK
dc.identifier.urihttp://hdl.handle.net/10722/85663-
dc.description.abstractThis paper considers the financing of investment in the presence of information asymmetry between 'insiders' and 'outsiders' of the firms. It establishes a well-defined capital structure for the economy as a whole with the following features: low-productivity firms rely on the equity market to finance investment at a relatively low level; mediumproductivity firms may not invest at all; and high-productivity firms rely on the debt market to finance investment at a relatively high level. It is shown that the debt market is efficient, with respect to the scope and the amount of investment made by each firm. However, the equity market fails: its scope is too narrow and the amount of investment each firm makes is too little. A unique but rather unconventional policy tool is proposed to achieve constrained Pareto-efficiency, i.e., subsidies to those firms that choose to equity-finance their investment (i.e., equity-marketcontingent grants).-
dc.languageengen_HK
dc.publisherMohr Siebeck. The Journal's web site is located at http://www.mohr.de/fa.htmlen_HK
dc.relation.ispartofFinanzarchiven_HK
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License-
dc.titleDebt- and Equity-Financed Investment: Equilibrium Structure and Efficiency Implicationsen_HK
dc.typeArticleen_HK
dc.identifier.openurlhttp://library.hku.hk:4550/resserv?sid=HKU:IR&issn=0015-2218&volume=57&issue=4&spage=361&epage=375&date=2001&atitle=Debt-+and+Equity-Financed+Investment:+Equilibrium+Structure+and+Efficiency+Implicationsen_HK
dc.identifier.emailYuen, CW: cwyuen@hku.hken_HK
dc.identifier.authorityYuen, CW=rp01123en_HK
dc.description.naturepreprint-
dc.identifier.doi10.1628/0015221012904814-
dc.identifier.hkuros71136en_HK

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