Abstract
We study an environment with short-sale constraints and heterogeneous beliefs among outsiders and between insiders and outsiders. Firm insiders choose between equity, debt, and convertible debt to raise external financing. We analyze two settings: one in which heterogeneous beliefs is the only market imperfection and another in which there are significant security issue and financial distress costs. Our model generates a pecking order of external financing different from asymmetric information models, and new predictions for capital structure, sequential tranching of securities, the price impact of security issues, and long-run stock returns. We also provide a new rationale for convertible debt issuance.
Original language | English |
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Pages (from-to) | 258-320 |
Number of pages | 63 |
Journal | Review of Corporate Finance Studies |
Volume | 4 |
Issue number | 2 |
DOIs | |
State | Published - Sep 2015 |
Bibliographical note
Publisher Copyright:© The Author 2015. Published by Oxford University Press on behalf of The Society for Financial
ASJC Scopus subject areas
- Business and International Management
- Finance
- Economics and Econometrics