Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/84982
Authors: 
Gorelkina, Olga
Kuhle, Wolfgang
Year of Publication: 
2013
Series/Report no.: 
Preprints of the Max Planck Institute for Research on Collective Goods 2013/18
Abstract: 
This paper studies a firm´s optimal capital structure in an environment, where the firm´s stock price serves as a public signal for its credit worthiness. In equilibrium, equity investors choose how much information to acquire privately, which induces a positive relation between the amount of equity issued and the stock price signal´s precision. Thus, through its capital structure, the firm can internalize the informational externality that stock prices exert on bond yields. Firms with a strong fundamental therefore issue more equity and less debt than they would if the informational spill-over did not exist.
Subjects: 
information aggregation
capital structure
sequential markets
market depth
JEL: 
G32
D83
C73
G10
Document Type: 
Working Paper

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