Debt versus Equity—Open Innovation to Reduce Asymmetric Information

The Roles of Debt, Equity and Warrants Under Asymmetric Information

This paper analyses the roles of debt, equity and warrants under asymmetric information and provides two rationales for the issuance of combinations of debt and equity as well as for the use of warrants. Two cases are considered: i) pure adverse selection and ii) adverse selection cum moral hazard. In the former case, a combination of securities is only used to convey socially costless informat...

Paying the pauper--ways to reduce student debt.

Renegotiations on Sovereign Debt: Reduce or Reschedule?∗

We present a continuous time model of sovereign debt with the possibility to renegotiate once the terms of the contract. Renegotiations consist of a debt reduction or a debt rescheduling. The model provides closed-form solutions for debt values with endogenous default policy and renegotiations terms. Simulations indicate that both reduction and rescheduling deals allow the lender and the sovere...

Internal Finance versus Bank Debt

This paper considers a two-period model in which a firm needs outside financing in period 2. If a firm establishes a reputation with a bank already in the first period, it may reduce the cost and increase the availability of bank debt in the second period. To establish such a reputation, the firm must induce the bank to monitor in period 1. Bank monitoring effort is non-contractible, so the fir...

From market failures to market opportunities: managing innovation under asymmetric information

This article presents a review of the literature that focuses on the role played by information asymmetry in the management of innovation. Results are organised in two categories. On the one hand, information asymmetry is considered as a major source of market failures because it affects the quality of innovative goods and services available on the market and disturbs the process of allocating ...